Retirement in America comes with a lot of concerns related to finances and health, with both of these issues often being intertwined.
Long-term care is emerging as a key concern for older Americans, especially since its costs will most likely need to be covered from a fixed income. This is one reason why home equity can be a notable difference-maker and should be part of the conversation.
This is according to Sandra Block, a personal finance editor at Kiplinger, in an article about navigating retirement hurdles and the considerations that go into later-life spending.
More than half of 65-year-old adults will need some kind of long-term care, according to 2019 data from the U.S. Department of Health and Human Services (HHS).
“At the same time, only 8% of Americans have long-term-care insurance, so most seniors will have to rely on their savings and government assistance to pay for long-term care,” Block wrote.
Creating a timeline of expenses and obligations can be important to determine a path forward, particularly if an older person does not want to wait until their death for an assistive inheritance payout to a family member. Long-term care should be a key consideration, and one potential way to address these costs and other spending goals is to incorporate home equity, according to Block.
Citing data from the National Reverse Mortgage Lenders Association (NRMLA), senior-held home equity rose to more than $13 trillion in first-quarter 2024. Deploying this equity by converting it into liquid funds may be an option for the right person, she explained.
“Seniors often use proceeds from the sale of their homes to pay for care in an assisted-living facility or nursing home,” the article reads. “If you prefer to age in place, you may be able to use a reverse mortgage to pay for in-home care. Creating a source of guaranteed income that ensures you’ll have funds coming in no matter how long you live could make it easier to give away money while you’re still alive.”
An increasing number of Americans believe that retirement at the traditional age of 65 is “unrealistic,” according to data from financial services provider Equitable.
Senior debt levels are also growing based on data from the Employee Benefit Research Institute. But seniors have also recently expressed more optimism about meeting their retirement goals as the bite of inflation has diminished in recent months, according to survey data from Charles Schwab.
“…senior-held home equity rose to more than $13 trillion in first-quarter 2024. Deploying this equity by converting it into liquid funds may be an option….”
The only way in the next few years to liquify even 50% of current senior home equity is through sales. While only adjustable rate HECMs have more than minimal growth in a line of credit, HECM PLFs are currently low due to both 10 Year CMT rates (strange for not being particularly high) and the action of the Trump Administration in lowering PLFs (of course, the Biden Administration has done absolutely nothing to correct the situation). The result is seen in the endorsement volume over the last 23 months with fiscal year 2023 ultimately being the second (soon to be third) worst fiscal year for HECM endorsements since fiscal year 2003 and fiscal year 2024 quickly taking over as the worst fiscal year for HECM endorsements since 2003 (taking that title from fiscal year 2019). The total HECM endorsements from the three fiscal years 2019, 2023, and 2024 (three of the last six fiscal years) will end up less than the total endorsements for fiscal year 2007, the third best fiscal year for HECM endorsements. Worse, total HECM endorsements for the three worst fiscal years since 2003 will end up being over 15,000 less than the total HECM endorsements for fiscal year 2007 (17 years ago) by itself. Who would have imagined this result in summer 2017?
Late fiscal year 2024 Case Number Assignment activity is indicating that fiscal year 2025 could potentially end up as an even worse fiscal year for HECM endorsement activity than fiscal year 2024. Will we see substantially lower interbank borrowing rates this next fiscal year? Who can forget the exuberant excitement throughout the industry in the first quarter of fiscal year 2024, only to have that fiscal year ending this month produce such poor HECM endorsement results.
But one thing is all but certain; in less than a month, the NRMLA convention will end on a high note showing how few lessons were learned from the endorsement activity of both fiscal year 2023 and the current fiscal year. Lenders in fiscal 2023 were confident they could turn on a dime and go from a sold HECM Refi fiscal year to one requiring new borrowers. Some are even talking as if they had. It did not happen then and became even worse during fiscal year 2024. So again, what will the HECM endorsement total for fiscal year 2025 turn out to be?