Home Economics For Retirement

What’s your vision of a good retirement?

For many, it’s not too different from what they have today – living in the same place but with more time to savor the comforts of home.

Good luck with that.

A recent study by the nonprofit Employee Benefit Research Institute analyzes the spending of a representative sample of 5,000 households with a member over age 50 from years 2000 through 2009. The EBRI report finds that these households devote the lion’s share of their spending to housing – which experts say could mean some won’t be able to afford their current home through retirement.

The younger part of the group, 50- to 64-year-olds, spent more of their dollars on housing than those 65 and over did. Specifically, in 2009, the 50 to 64 group spent a median of $18,828 on either mortgage, property taxes, homeowner insurance, and repairs and maintenance; or rent. That chunk represents 47 percent of all the dollars they spent in that year.

If you’re in this 50 to 64 group (also know as the Baby Boomers), you can do some quick calculations and see how your housing expenses relate to others in your demographic cohort.

While it’s interesting to do comparisons, experts say pre-retirees should be concerned only with their own personal numbers. Indeed, the EBRI findings can be interpreted different ways, experts say, reflecting different savings habits and tracks toward retirement.

And, even if high housing costs leave you with little savings, there could be solutions. Here, a look the complicated housing-retirement equation:

Castle Quest

The data may support the argument that Boomers traded up to more expensive homes, even as they approached pre-retirement years, something previous generations didn’t do.

EBRI researcher Sudipto Banerjee explains that in later years, Boomer households spent progressively more on housing. The median housing costs in 2001 totaled $13,486, or 38 percent of all dollars spent, jumping to 47 percent in 2009. The 50-somethings were in their forties in 2000, suggesting the younger study participants bought or rented increasingly expensive housing.

That’s exactly what Melville, N.Y., financial planner William Hammer has observed: “If I look at my clients who are in their 70s and 80s, many of them lived in the same house for thirty, forty, or even fifty years. That length of ownership would be a lot harder to find with people who are in their 50s and 60s.”

Slice or Sliver?

While Boomer housing spending grew in the last decade, the fact that housing accounted for nearly half of all expenditures doesn’t necessarily “send big warning flags up about retirement preparation,” notes John Karl Sholz, University of Wisconsin-Madison economics professor.

Indeed, it could be that Boomer households have reduced their total spending to save more for retirement, and so housing occupies a bigger slice of their total expenditures, adds J. Michael Collins, director of the University of Wisconsin-Madison Center for Financial Security.

Personal Decisions

Only Boomers and their financial advisors can determine whether their personal housing spending and saving habits will mean enough income in retirement to remain in their homes.

Many people are loath to move to a less expensive home, feeling “defeated” by the necessity of downsizing, Hammer says.

But more Boomers are downsizing for financial reasons, and if they gain a sense of control, they will feel better about moving to smaller, less expensive quarters, says Valerie Kistenbroker, co-owner of DV Home Staging, Northbrook, Ill.

“We advise keeping a separate calendar strictly devoted to downsizing, and giving yourself enough time to decide what items are really important. Focus on it as a controlled exercise,” she advises.

Another solution that might allow homeowners to stay is to take a reverse mortgage, and use the proceeds to pay off the existing mortgage on your home, explains Tony Webb, research economist at the Boston College Center for Retirement Research.