Baby Boomers Face Mortgage Debt Time Bomb in Retirement

A reverse mortgage can help retirees pay off existing mortgage debt and eliminate monthly payments toward the ownership of their homes, but more of today’s Baby Boomers are carrying that housing debt into their retirement years than past generations and it could be setting them up for a ticking time bomb, suggests a recent column by The Washington Post.

“Burning the mortgage agreement” may have been a big deal for the Greatest Generation, but these days their Boomer children are increasingly carrying that debt into retirement—a trend that financial and retirement planners may find distressing. 

“People who lived through the Depression wouldn’t think about retirement without having all their debt cleared,” says James Gambaccini, financial adviser at Acorn Financial Services, in the article. “Boomers are not only fine with it, but prior to the crash, they tried to retire with a lot of debt. We had people trying to retire and build that dream home of 15,000 square feet. That is somewhat unique to baby boomers.”

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One of the dangers of retiring with mortgage debt is that the economy and markets may “turn bad,” says Ken Moraif, senior adviser at Dallas-based Money Matters.

“The money you thought would be there to service your mortgage is not there,” he says in the article. “Now what? I’m sure the bank will not say, ‘I will let you live there for free.'”

Another caveat to retiring with mortgage debt is that debt contributes to fixed expenses in retirement, says Mark Hebner, president of Index Fund Advisors. 

“The more you have, the less room you have for variable expenses, such as entertainment and travel,” he says in the article. 

Read more at The Washington Post.

Written by Jason Oliva

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  • Mr. Rodney Brooks, the columnist, notes: “Mark Hebner, president of Index Fund Advisors, says: “One of the problems with debt is it contributes to your fixed expenses in retirement…. The more you have, the less room you have for variable expenses, such as entertainment and travel.”

    While many in our industry confuse cash inflow with income, Mr. Hebner does not seem to know the difference between a fixed expense and fixed monthly cash outflow. When there is an impound account associated with a mortgage, there are normally three components to a mortgage payment: 1) prepaid expenses (impounds for taxes and insurance), 2) interest, and 3) principal. Interest is the only current expense and generally it is decreasing with each payment, not fixed. What is normally fixed for at least a year is the cash payment, i.e., the total monthly mortgage payment.

    Understanding the nuances of cash flow is critical in analyzing the cash flow needs of the almost and mass affluent seniors.

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