April 17, 2023

5 strategies older homeowners may use to curb the ravages of inflation.

Many Americans feel we’re entering into an economic recession or already have. Our present state of affairs should come as no surprise. In essence, the bill has come due for years of money-printing and trillions in economic stimulus pumped into world economies, all in the effort to stave off the worst economic impacts of the Covid-19 pandemic. Today retirees find themselves stuck between a fixed income that’s being slowly consumed by a decline in purchasing power. 

Last week Yahoo Finance reported a survey revealing that 89% of Americans 60-75 believe there is a retirement savings crisis. American Advisors Group surveyed 1,500 individuals across the country whose respondents reported to be reducing their discretionary spending or in some instances, tapping into their home equity. 

The sad reality is even those who had saved enough to retire find themselves pinched by inflation which reached historic levels last year. While recent data shows the rate of inflation is slowing the Federal Reserve may be unable to keep a lid on rising costs. The Fed’s efforts to curb inflation would be undermined should several countries abandon the U.S. dollar as a world reserve asset pushing trillions of dollars back onto our shores.

But back to what retirees may be able to control. Their cash flow. Increasingly older Americans on a fixed income are returning to the workforce according to a recent USA Today report. This retirement boomerang has lured many into the retail and service sectors. This became clear to me observing local app delivery drivers for Uber Eats or Door Dash are no longer predominantly millennials but include a significant number of individuals who appear to be over the age of 60. All this brings us to the question of how older Americans can survive this inflationary cycle. There is a myriad of options but here are just five to consider discussing with your potential borrowers.

The first option, as we just mentioned, is to return to work. If their health allows this is a quick fix to a cash flow crunch. The second is to increase their withdrawals from their retirement savings. While this may solve an immediate need for cash it will significantly shorten the length of their sustainable withdrawals or how long that savings will last. The third choice is to take Social Security benefits sooner than later. While the delay of Social Security has been touted by many it’s an uncertain proposition. After all, no one knows if they’ll live long enough to enjoy their anticipated payouts. The Fourth is to cut discretionary spending. While this may help some weather today’s inflationary economy for most such cost-cutting falls short. The fifth option to protect one’s retirement savings is to tap into their home’s value with a reverse mortgage. While the loan is certainly a path to incurring an increasing debt its benefits are unique and often well-suited for those not concerned about leaving their home as a bequest to family members. Those who may be tempted to tap into their home equity with a HELOC may want to think again as the required payments will erase some of the cash flow benefit and perhaps most if not all of the cash flow generated when the loan fully amortizes to a higher monthly payment. 

No one likes to feel pushed into a corner yet that’s exactly where inflation has left many retirees. Discussing potential solutions to mitigate the worst effects of inflation empowers homeowners to make a fully informed decision, one that hopefully provides a long-lasting and bonafide benefit.

By Shannon Hicks