In never ceases to amaze me that when it comes to discussion about retirement, advisors and clients alike overlook the most important issue; whether or not there is a mortgage.
Why do I say this is the most important issue? Well, simply look at this study from the Bureau of Labor Statistics (BLS): “Housing was the greatest expense in average dollar amount and as a share of the household budget for older households. ” (Older households being over the age of 55).
Let me reiterate; HOUSING EXPENSES is the greatest expense for households with people over the age of 55!
In fact if you dive into the numbers, nothing even remotely comes close.
Looking at the study you will see that housing expense accounts for 1/3 or more of ALL expenditures, which is double the next biggest expenditure.
People always say health care will be the biggest expense for retirees. I’ve heard this a million times, if I’ve heard it once. Yes, health care expenses do INCREASE the most, almost doubling in expenditures from the ages of 55-64 to above 75. But even after that increase, those over 75 spend only 15.6% of their income on health care whereas they are spending 36.5% on housing.
Unfortunately, the BLS study also points out “the proportion of families with heads age 55 or older with housing debt increased steadily from 24 percent in 1992 to 42 percent in 2010.”
More than ironic, comes this study from TowersWatson which shows that retirees happiness is declining, rather significantly actually.
Towers Watson points out that retirees who have income annuities are happier than retirees who don’t. I won’t get into that discussion here.However, I will point out that I believe it is not a coincidence that as retirees carry more mortgage debt into retirement they are not quite as happy.
TowersWatson makes the case that annuitizing (turning assets into a monthly cash flow) can help retirees feel more comfortable. I completely agree. But that overlooks the issue of why retirees aren’t comfortable to begin with. I argue it’s because more retirees have mortgages!
According to the BLS, there has been an increase of roughly 65% of households over 55 years of age that have mortgages over the past 20 years or so. Again, the TowersWatson study shows that retirees level of satisfaction is dropping since the 90’s. Coincidence? Heck no!
It’s not rocket science here, my friends. You have debt, you have more worry. Crazy talk right?
Yet, my industry is consumed with things like investment returns, which is important but, in my not-so-humble opinion, we’re missing the forest for the trees; Mortgage Debt dwarfs EVERYTHING! Focus on this first and the rest will take care of itself.
So, what do YOU do, dear reader? Simple, if you want to be happier in retirement, have no mortgage. I argue having no mortgage is the number one thing you can do for retirement happiness.