Friday, December 14, 2012

The downsizing crunch

The baby boom retirement crunch is upon us.  The following is only highlighting the blurbs of the article.
Anne Tergesen, Wall Street Journal, 10 December 2012
With Nest eggs in fragile shape…
·         Only 43% of 401(k) participants have account balances greater than $100,000
·         54% if families ages 55 to 64 are carrying mortgage debt, up from 37% in 1989
·         $97,000 is the median mortgage debt among families ages 55 to 64, up from just $34,000 in 1989
And concerns mounting about later life…
·         47% say they aren’t confident about having enough money to live comfortably in retirement
Downsizing has its appeal…
·         43% of American ages 50 to 64 plan to move within six years, and 50% of those say they plan to move to a smaller house.
Moving to a smaller home doesn’t always work well.  A study of people who moved in the 1990s and 2000s showed that even when people chose to downsize, moving costs and fees at up a lot of money: on average only $26,000 additional moneys were freed up: and that was before the housing bust.
There has always been a concern with all the baby boomers selling of their assets (homes, stocks, bonds....) and cratering the market.  But added to this problem is the dreadful state of the finances of the young folks coming into the job market.   A trillion dollars in student loan debt doesn't leave a lot left over for people trying to sell their homes.


John D. Wheeler said...

You know you're pretty much in trouble when you start with "Everyone says...." This goes back to supply and demand. If an unusually large number of baby boomers are retiring and looking to downsize, that is going to drive up the price of smaller homes.

That said, there are plenty of other reasons to downsize, especially when retiring. Less house means less upkeep. Going to a ranch style means fewer stairs to walk up and down. If you had a large family, having a lot of empty rooms might feel lonely. And if you no longer need to live close to work and want to be closer to kids and grandkids, then the costs of moving are pretty equal, so downsizing might make more sense.

This is definitely a case where you need reputable person who knows your neighborhood to help you figure out whether it makes economic sense.

russell1200 said...

John: Another factor is how high the property taxes are. All states gather up monies in some fashion, but a lot of the high home price states are also weighted to relatively high property taxes.

The assisted living apartments, which are very nice in some ways, are an extreme form of reducing down you personal space, sharing overhead expenses. Of course you have a rather extreme "corporate" risk that the business model will work for the decades that you are going to stay in one.