Senators Aiming to Solve Retirement Crisis Hear About Reverse Mortgages

In seeking solutions on the looming retirement crisis in the U.S., the Senate Special Committee on Aging received input from experts this week on topics from 401(k)s to reverse mortgages.

The special committee of Senators, launched in 1961, has been busy of late with discussions relating to the retirement of the baby boomer cohort, and rising challenges stemming from the next generations of aging Americans.

In a hearing this week titled “Bridging the Gap: How Prepared are Americans for Retirement?” the committee heard from several experts, including academics, researchers, and a credit union representative, as to their ideas on solving some of the current retirement crises.

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While much of the discussion focused on education of Americans on topics such as retirement savings plans, and the “full age” under Social Security versus the maximum age of 70 at which retirees can opt to begin receiving benefits, one topic that came up in written testimony from researcher Alicia Munnell, who leads the Boston College Center for Retirement Research: home equity.

“Many households have a little-recognized asset that they could turn to for income in retirement – the equity in their home. Generally, retirees think of their home equity more as an emergency reserve rather than a potential source of retirement income. However, given the challenge of ensuring retirement security, this view may be a luxury that many can no longer afford,” Munnell writes.

In her addition to her role at Boston College, Munnell is an investor in reverse mortgage lender Longbridge Financial.

The Senate Committee did not seek expansion on the home equity retirement concept, but Munnell continued in her testimony to note the impact that reverse mortgages can play as a retirement tool for those who do have home equity but lack other retirement savings options.

If households do not have enough from Social Security and their 401(k) assets, they should consider tapping their home equity by either downsizing or taking a reverse mortgage,” Munnell writes. “Downsizing provides extra funds that can be used to generate retirement income and also cuts expenses for utilities, maintenance, and property taxes. A reverse mortgage allows retirees to stay in their home while accessing their equity; and the loan does not have to be paid back until the homeowner moves, sells the house, or dies.”

Further, Munnell points to recent program changes that have strengthened the Home Equity Conversion Mortgage Program and advises policymakers that educating consumers about their reverse mortgage options is part of the retirement solution.

Written by Elizabeth Ecker

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  • Is it really all that clear that “downsizing provides extra funds that can be used to generate retirement income and also cuts expenses for utilities, maintenance, and property taxes?” I have known individuals who left California to downsize and found that not only did their maintenance costs go up but so did their property taxes and utilities. However, the one thing they enjoyed was how much greater their per square foot selling price exceeded that of their purchase price. So although such claims are made about the benefits of downsizing, many do not experience such cuts in costs.

    It is interesting that Dr. Munnell provided written testimony, not spoken testimony. Few Senators are able to read all written testimony of those who provide it and normally only read that of those who provide spoken testimony in subjects they have interest in.

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