Submitted by Admin
There are millions of us in the world and all of us are unique. Because of this, retirement can mean different things to different people. Some view it as a time of quiet enjoyment where they finally get to read, garden, and have a relaxing social life with family and friends. For others, it could be an exciting time to pursue a new career, get stuck into their favorite sports, or pack the suitcase and explore another country.
Statistics show that 28.6 million baby boomers retired in the third quarter of 2020, a 12.6 percent higher figure compared to the same period in the previous year. Part of this could be due to COVID-19 job losses which led to senior participants in the labor force being made redundant before their planned retirement age. Another factor could be voluntary early retirement as they reevaluated their lifestyle choices after being affected by the pandemic. However, early retirement combined with the climbing costs of healthcare and living expenses could pose a remarkable risk to those who are not financially prepared.
When I’m 64
Just as the ideal retirement scenario is different for everyone, the state of our retirement piggy bank varies widely as well. It has been established and accepted worldwide that a gender pay gap exists and, according to the World Economic Forum, it could take up to 217 years before we would be able to eliminate gender disparity. Meanwhile, women on average are paid about 80 cents to the dollar throughout their working lives compared to men, with Hispanic women making the least at 55 cents to a dollar. In addition, women are more likely to give up their jobs to partake in caregiving duties such as looking after children and sick or elderly family members, allowing less time to earn and save.
This diminished capability to accrue savings has a heavy influence on women’s retirement resources, with women averaging just $23,000 in total retirement savings while men average three times more at a tidy sum of $76,000. Many women are also left at a disadvantage in the event of a divorce, especially if they were primary caregivers and were not in control of household finances and assets. These trends are worrying because women generally have longer lifespans and are more likely to spend a number of their senior years living alone without anyone to share the cost of expenses. This translates to an increased necessity for insurance premiums, healthcare costs, and funds for subsistence.
The glaring inequality is not merely between genders though. America’s racial wealth gap is another issue driving a great divide and a retirement crisis in some communities. For every dollar that a white person with a high school education makes, a Hispanic person of the same standing makes 89 cents, and a Black person 82 cents. For college graduates, Hispanic workers make 85 cents and Black workers 77 cents to the dollar compared to white workers. The pandemic recession has exacerbated the situation, with workers of color facing more job losses. In particular, Hispanic women experienced a devastating 21 percent decline in employment.
Since retirement funds are the results of savings and investments accumulated throughout our working lives, it is no surprise that people of color end up with less wealth and poorer retirement readiness. And because people of color have a reduced amount of disposable income to spend on property, the homes that they own are generally of lower value than that of white Americans. According to the National Retirement Risk Index of the Boston College Center for Retirement Research, the value of home equity is considered to have a high impact on retirement funds as households are assumed to extract income by utilizing a reverse mortgage.
I Did It My Way
Reverse mortgages are essentially loans that use home equity as collateral. In a traditional mortgage, borrowers make installment payments towards the loan amount. In a reverse mortgage, the lender makes payments to the borrower instead. These payments—including principal, interest, and fees—are repaid only when the borrower is no longer living in the house. This could be when the borrower sells the house, moves out, or passes away. Borrowers can choose to receive their loan payments as monthly installments, lump-sum payouts, or access to a line of credit. Reverse mortgages have allowed retirees over the age of 62 to create a stream of income based on the equity of their homes.
Retirees also have the option to refinance a reverse mortgage to make the most of their loan arrangements. In the event of rising property prices where the value of the home has appreciated significantly since the agreement was made, a refinancing option can provide retiree homeowners with access to more home equity and greater income opportunity. For retirees who found love in their senior years or whose spouse has recently turned 62, refinancing can add a spouse to the loan which will allow them to stay in the home after the demise of the primary borrower.
For retirees with most of their savings tied up in home equity, reverse mortgages are a good way to create cash reserves, supplement retirement income, and pay for healthcare services. For people of color and those who are retiring with less savings than they need, financing options such as a reverse mortgage could be a lifeline in their senior years. As the population of the United States continues to age, retirement equity is an important subject that needs to be addressed and reviewed.