In light of government departmental budget proposals prepared and announced last week, the retirement outlook for most seniors and those approaching retirement years is none the better. In fact, given the lack of attention to Social Security and recent payroll tax cut extension, the retirement outlook could be even worse, according to the Boston College Center for Retirement Research.
“The President’s budget does not contain any major new proposals that would dramatically affect the retirement income picture,” Alicia Munnell, director of the Center for Retirement Research told RMD in an email. “It does include the Automatic IRA proposal again (as in last year’s budget), which would be a positive step toward expanding retirement savings among workers who currently lack access to a 401(k) plan. However, the failure to address Social Security’s long-term funding shortfall is disappointing. And the extension of the payroll tax cut could potentially make solving the shortfall more difficult because there is often considerable resistance to letting tax cuts expire.”
The need for retirees to rely on their home equity as an income source in retirement is still very much present, in light of the budget’s attention to certain retirement programs.
“Going forward, many retirees may find that their financial resources are insufficient to maintain their pre-retirement standard of living,” Munnell says. “If so, they should consider tapping their home equity.”
Specifically, the need for changes to Social Security is driving the uncertainty of the situation and lack of confidence for those retiring today, as well as those who will retire in the coming generations.
“Shoring up Social Security would help everyone by restoring confidence in the program and providing greater certainty about future benefit levels,” Munnell says. “With the decline of private sector defined benefit plans and growing longevity and health care costs, younger generations will have a greater need to save on their own for retirement through 401(k)-type plans.”
Munnell’s team at the Center for Retirement Research, which has conducted analysis with the finding that retirees who have reverse mortgages tend to be better off on average in retirement than those who do not, is continuing to look into the benefits of using home equity conversion products.
Written by Elizabeth Ecker