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Exploring How Housing Can Address Retirement Costs

A columnist at Forbes has recently posted an op-ed discussing America's "retirement crisis" and ways that homeownership can help.

Americans looking to their retirement with inadequate savings need to consider tapping into the equity value of their homes to help finance their post-career years, according to a Forbes op-ed column authored by Rayan Rafay, COO and CFO at Fraction, a San Francisco-area digital platform that provides homeowners with socially conscious financial solutions.

Rafay, who is also a member of the Forbes Real Estate Council, noted that nearly 49 million retired Americans received an average monthly Social Security benefit of $1,500 during June. The Social Security benefit covers more than 91% of all seniors. But for those approaching the retirement threshold, the financial situation is somewhat thornier—Rafay observed only 21% of working Americans have a pension related to their jobs, and the majority of private sector companies are shutting down their pension plans. While government workers still have a pension plan, less than 20% of the population is working in this sector.

“If you are in your 60s, it is recommended that you have saved eight to 10 times your annual income,” Rafay wrote. “But on average, Americans have less than half that, with only $172,000 saved. The median income of retired households is $43,696, but for those households over 75, it drops to $34,925. We are outliving the insufficient savings we have.”

Rafay stated that the next wave of retirees would need 80% of their pre-retirement household income to maintain their current standard of living and cover expenses including health care during their retirement years.

“Assuming a retirement age of 65 and looking at the median income in the decade before, this equates to approximately $55,000 a year,” he added. “Given the current median income in a post-retirement household of $43,696, this is a deficit of approximately $11,000 per year. This deficit can grow larger as Americans age.”

Rafay observed that seniors have a roughly 80% homeownership rate and most of these residences do not carry a mortgage. He highlighted that the “utility of a home is different than the financial asset that is a house.” While noting reverse mortgages have been a primary option for seniors, other options including home equity sharing and appreciation mortgages have been gaining popularity.

“They each have their unique considerations, but what is clear is that assuming a reasonable 5% return on investments these gains could help bridge this gap,” he continued. “This gives retirees a better chance at the safety and comfort they have worked for their entire lives.”

However, Rafay acknowledged that “adequate safeguards” need to be maintained to prevent both elder abuse and the financial exploitation of seniors. But with these safeguards, Rafay said, “financial products that help to offer liquidity to homeowners should be encouraged not just by financial advisors but also by advocacy groups for seniors.” He also encouraged the federal government, financial institutions and institutional investors to make these products available.

About Author: Phil Hall

Phil Hall is a former United Nations-based reporter for Fairchild Broadcast News, the author of nine books, the host of the award-winning SoundCloud podcast "The Online Movie Show," co-host of the award-winning WAPJ-FM talk show "Nutmeg Chatter" and a writer with credits in The New York Times, New York Daily News, Hartford Courant, Wired, The Hill's Congress Blog and Profit Confidential. His real estate finance writing has been published in the ABA Banking Journal, Secondary Marketing Executive, Servicing Management, MortgageOrb, Progress in Lending, National Mortgage Professional, Mortgage Professional America, Canadian Mortgage Professional, Mortgage Professional News, Mortgage Broker News and HousingWire.

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