Reverse Mortgage Need to Rise With New “Normal” Retirement Age?

Contrary to what some retirement readiness studies have found, 70 is not the new 65 when it comes to the “new normal” age for retiring, and many will have to either work well into their 70s and 80s in order to have adequate retirement income, according to EBRI researchers, or possibly tap into their home equity with a reverse mortgage.

This conflicts with a Center for Retirement Research study released in June saying that 86% of American households would be able to comfortably retire with only a five-year delay.

Waiting to claim Social Security benefits, saving longer, allowing interest on those savings and other investments to compound, and financing fewer retirement years were named as ways working until age 70 could significantly improve retirement readiness, the CRR report said. 

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But it’s not that simple, and it will take a lot longer, says Jack VanDerhei, research director for EBRI and author of the report.

“You’re not going to magically be fine if you work a few more years,” he says.

Working into their 80s may not be physically possible for some, though, while others may simply not want to do so, and this could result in more households opting to access their home equity as a source of funding through a reverse mortgage loan, says the researcher.

“I do think there will be a growing need [for reverse mortgages],” VanDerhei told RMD, although it’s unknown whether this will translate into a growing trend toward increased reverse mortgage usage, he said. 

What the CRR didn’t factor into its report is the “prohibitively high” costs of long-term skilled nursing care, which isn’t covered by Medicare, and is only covered by Medicaid in some cases. VanDerhei included the probability of nursing home expenses in his report, leading him to a much different—and less optimistic—conclusion. 

While it would be “comforting” from a public policy standpoint to assume working that extra five years to age 70 is enough to attain retirement readiness, says EBRI, it may be a “particularly risky strategy, especially for the vulnerable group of low-income workers.” 

Results from a 2011 study indicate that the lowest pre-retirement income quartile would need to defer retirement to age 84 before 90% of the households would have a 50% chance of success. 

The report details the different baselines used by the Center for Retirement Research and the EBRI, which led to the disparate conclusions. 

“Different methodologies will produce different results, but both studies agree that working longer will help improve retirement security,” said Andrew Eschtruth, communications director for the CRR, in an email to EBRI. 

Check out the EBRI study findings

Written by Alyssa Gerace 

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  • Many in our small industry pay a great deal of homage to the BCCRR and recoil when its research credibility is questioned; however, the Center is more research white paper mill than consistent high quality research organization.  Just because the Center produces conclusions favorable to the position of the researchers or their sponsors does not make its research or findings either creditable or accurate.

    The problem is the Center also produces some very creditable research which is of the highest quality.  So as to the BCCRR, reader beware.

    The Employee Benefits Research Institute is the highly regarded research arm of the International Foundation of Employee Benefit Plans of tens of thousands of financial professionals are members.  While its findings are slanted to the views of collective bargaining units, the EBRI research is normally of the highest quality and integrity.  While one can challenge the slant of EBRI findings, it has been always hard to disagree with the level, quality, and integrity of its research.  Multiemployer and single employer collectively bargained employee benefit plans of millions of union employees form its base.

    So as a CPA, if you ask which research is most probable to be correct, the answer should be obvious. 

  • Bob,

    Unlike the BCCRR, the ERBI has the interests of the lower and middle income working class primarily in view.  Like far too many other studies published by the BCCRR, this one lacked the in-depth analysis which should have been undertaken when it came to such a serious subject matter.

    The EBRI is neither for nor against reverse mortgages.  It is simply reporting the outcome of its research and its impact on the millions of working participants and retirees the IFEBP represents.

    It should come as a strong warning to the majority of Baby Boomers who believe a few more years of working will cure the financial problems in their future. There is no substitute for adequate planning and strong accountability. The BCCRR standard in the REFERENCED study is simply too shallow.

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