Housing Costs After Retirement

Paying off the mortgage isn't the priority it once was, and for many households, it isn't even a possibility. But a new report from Harvard University'sJoint Center for Housing Studies reaffirms the common belief that retirees who own their homes outright are considerably better off than those carrying mortgages or paying rent.

The report, called ''Housing America's Older Adults,'' focuses on the changes needed to supply sufficient affordable housing for the country's 50-and-over population, which is projected to increase about 20 percent by 2030. The report found that paying off a mortgage dramatically reduces housing costs and provides an equity cushion to help cover other major expenses.

About a third of mortgaged households between the ages of 50 and 64 are moderately to severely burdened by housing costs, which include property taxes, insurance and utilities, the report said. (Moderately burdened is defined as spending 30 to 50 percent of income on housing costs; severely burdened households dedicate more than half their income to housing.)

But among similarly aged homeowners without mortgages, only 12 percent are cost-burdened.

Because income declines with age, the housing burden rises dramatically for households aged 80 and over. Nearly two-thirds of these households still paying mortgages are cost-burdened, compared with less than a quarter of homeowners over 80 without mortgages.

Chris Herbert, the center's acting managing director, noted that spending such a large percentage of income on housing has a far greater effect on lower-income households than more-affluent ones. The report found that housing costs above 30 percent of income commonly force low-income households to skip meals or cut back on health care.

Lower-income renters are in the worst financial position. Some 77 percent of renters over 50 with annual incomes below $15,000 are cost-burdened, as well as about half of those with incomes from $15,000 to $29,999. Unlike homeowners, renters lack an equity cushion to ease the strain.

''Those groups are going to struggle through much of their retirement years,'' Mr. Herbert said, ''and at the end have very little to draw upon.''

Among baby boomers with mortgage debt, more are carrying it into retirement. As of 2010, 40 percent of households 65 and up were still paying a mortgage, compared with about 18 percent in 1992, according to the report.

Mr. Herbert, who is in his early 50s, said his own situation puts him on a similar trajectory. He recently refinanced at a lower interest rate, which means he could be paying a mortgage into his 80s. His children's college expenses are competing with the possibility of paying the mortgage off more quickly.

The report's findings ''opened my eyes to think that you really do need to have a financial strategy toward paying off your mortgage,'' Mr. Herbert said. ''Many people in a similar situation may not have any option about paying off the mortgage,'' he said, ''but for those who can, it would be beneficial to pay more attention to it.''

Homeowners nearing retirement who have a mortgage with a low fixed-interest rate shouldn't necessarily pay it off, so long as they have accumulated enough assets in retirement accounts to comfortably cover the monthly expense, said Jacob H. Gold, the president of Jacob Gold & Associates, a wealth management firm in Scottsdale, Ariz.

Still, with fewer employers offering pensions, whenever a homeowner ''can financially afford to redirect their efforts to pay down the mortgage,'' Mr. Gold said, ''that should always be their intent.''

CHARTS: INDEX FOR ADJUSTABLE RATE MORTGAGES: 1-year Treasury rate (Source: HSH.com)

September 14, 2014, Sunday    Late Edition – Final
Section: RE    Page: 12    Column: 0    Desk: Real Estate Desk    Length: 574 words