Even when they do utilize a reverse mortgage as a means to improve their retirement picture, more than half of households are at high risk of not being able to maintain their standard of living in retirement.
This is the finding of a retirement study released Tuesday as an update to the National Retirement Risk Index, tracked by the Boston College Center for Retirement Research and sponsored in part by Prudential.
Accounting for an increase in mortgage insurance premiums for Federal Housing Administration reverse mortgages as well as high levels of mortgage debt relative to lower home values over the past three years, reverse mortgages are not as available a solution as they once were, the retirement center reports, due to a down housing market. Still, households are better off using them, but even those that do will only half the time achieve retirement security, the research finds.
“The NRRI confirms what we already know: today’s workers face a major retirement income challenge,” the report states. “Even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, more than half are at risk of being unable to maintain their standard of living in retirement.”
The research takes into account two sources of “income” having to do with housing: the rental value homeowners receive from living in their homes free of rent, and the amount of equity they could borrower from their housing wealth through a reverse mortgage.
But reverse mortgages have been influenced by two factors which have put put pressure on their availability and use, the NRRI reports.
“Changes in housing wealth affect the NRRI in a couple of ways, one of which interacts with interest rates. First, the lower the value of housing the less a household can extract at retirement in the form of a reverse mortgage. Second, the lower the interest rate the more a house can borrow through a reverse mortgage.”
Because of low home values, many households will not be eligible for a reverse mortgage, the research states, just one problem introduced to retirees by the housing market in the current economy.
“The NRRI clearly indicates that this nation needs more retirement saving,” the research concludes.
Written by Elizabeth Ecker