Older Americans need to face their financial fears

Covid-19 isn’t the only pandemic spreading across our nation. Fear and uncertainty are just as contagious. Two particular groups are especially worried- older Americans nearing retirement and those who are already entered their non-working years. Kiplinger reports that one in five Baby Boomer has retired and the pace of Boomer retirement increased during the pandemic. What keeps Boomers up at night? SeniorLiving-org found that nearly 1 in 2 adults feared not having enough money saved for retirement. 1 in 4 older adults fears they’ll never pay off their existing debt. In fact, a recent U.S. Census Bureau report found 1.7 million older homeowners were behind on their mortgages and fear eviction.

Debt not only can lead to sleepless nights, but it can also be an outright nightmare. Case in point, last August the CFPB reported, “Since April 2020, the Census Bureau has tracked the number and characteristics of homeowners struggling to make their mortgage payments. As of July 2021, an estimated 682,400 older adults, defined as adults age 65 and older, were behind on their mortgage payments.” It’s quite alarming to learn that mortgage delinquencies and homeowners with zero confidence.

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For such individuals Kiplinger’s advice to measure retirement preparedness with the 10X rule which says you should have saved 10 times your pre-retirement income by age 67 will do little to give them peace of mind. However, retirees who restructure how their debt is held could see the greatest benefit. For most Americans, their largest debt is their mortgage. That debt could be restructured in two ways.

The first is a mortgage loan modification. Older Americans suffering financial hardship may be able to get their interest rate reduced, extend the term of the loan, switch to a fixed-rate mortgage, roll late fees into the principal balance, or get a reduction of the principal loan balance owed.

The second is a reverse mortgage. What I like to call the ultimate loan modification. Like a traditional loan modification a reverse mortgage typically extends the term of the loan over the homeowner’s life in the home, accrued interest is rolled into the principal balance, and best of all required loan payments can be completely eliminated! Unlike a loan modification homeowners don’t have to prove their ability to make the required mortgage payments each month but rather their financial capacity to meet their existing expenses and stay current on their property charges to avoid having the loan go into default. Which do you think an older homeowner with substantial home equity would qualify for? A loan modification or a reverse mortgage? A homeowner with a decent credit history but a high debt-to-income ratio would likely not qualify for a modification. However, they may stand a better chance of restructuring their biggest debt into a Home Equity Conversion Mortgage.

Selling and downsizing are also an option but few want to move, and those who end up renting are exposed to rent inflation which is reported to be at its highest level in 30 years.

For a problem to get better one has to first acknowledge its existence. Older homeowners would do well to face their financial fears today while interest rates are low and home values are high. If not, sleepless nights may become the new normal.

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