The reverse mortgage industry has long discussed the demographic trends that are on its side when it comes to appealing to new potential borrowers, and next year could stand as a proving ground for such an argument.
According to population projections by the U.S. Census Bureau, 4.4 million Americans will reach the age of 65 in 2024 — a figure that comes out to roughly 12,000 people per day. By 2030, all members of the baby boomer generation will have reached the age of 65, which also means that by the beginning of 2028, the entire generation’s homeowners in the U.S. will qualify for a Home Equity Conversion Mortgage (HECM).
The trend is called “peak 65,” and the “graying” of the U.S. population will have notable impacts on the U.S. economy. But as life expectancies have largely improved over the past century, longevity risk also becomes an issue that U.S. retirees will need to keep in mind according to financial news editor Anne Stanley in a new column at Investor’s Business Daily.
“Retirement for boomers is different than it was for their parents in the so-called Silent Generation. Life expectancy has improved, and today’s 65-year-old can expect to live at least another 20 years,” the column says. “About 80% of households with older adults — or 47 million such households — are struggling today with money. And they risk falling into economic insecurity as they age, the National Council on Aging says.”
The longstanding retirement paradigm is ill-equipped to handle these new realities according to Jason Fichtner, chief economist at the Bipartisan Policy Center.
“With the U.S. experiencing the greatest retirement surge in its history, the country’s public and private-sector retirement systems have become obsolete,” Fichtner told Investor’s Business Daily. “The old metaphor of the three-legged stool of retirement planning — employer pensions, personal savings and Social Security — no longer holds.”
While there are challenges, there are also new opportunities, the column points out. Where 65 was at one time considered an “absolute” retirement age, that idea no longer applies as older workers — either through a desire or necessity — are working for longer periods of time.
But traditional retirement principles also need to evolve, Stanley says, due to the well-documented solvency issues with the U.S. Social Security system.
“This year, trustees for Social Security and Medicare calculate that Social Security will be able to pay 100% of scheduled benefits until 2033,” the column said. “Without additional funding, benefits would fall after that. The Hospital Insurance Trust Fund, the main fund for Medicare, is expected to pay 100% of benefits until 2031.”
There are a number of potential strategies that retirees can employ to react to the modern retirement landscape, the column says, including the incorporation of annuities and a greater role for investment activity. Taking recent changes to tax laws can also have a beneficial effect on a retirement plan.
But, as many in the reverse mortgage industry would say, consideration of home equity could make a difference in retirement for certain people, as well, especially when considering the high levels of housing wealth maintained by baby boomers.