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Home > Lifestyle > Real Estate |
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Home Improvement
Boomers' Retirement Homes
Baby boomers--the 76 million Americans born between 1946 and 1964--represent nearly a quarter of the U.S. population. They collectively control 40% of disposable income, and more than 70% of them are homeowners. That's the good news. Here's the not-so-good news: As the oldest baby boomers approach 56, they (begrudgingly) begin to think about retirement, but few of them are ready for it--psychologically or financially. A 1993 study sponsored by Merrill Lynch found boomers saved roughly one-third of the necessary funds for retirement, and given the recent precipitous drop in the stock market, that number could now be even greater. The news isn't all grim, however. When economists include boomers' home equity, they find boomers are in much better financial shape to retire. The problem is that the demographic is not taking full advantage of its real estate assets. Translation? They're staying put and not selling their homes. In fact, when the AARP conducted a study of boomers' retirement savings trends, it found that if home equity were factored into boomers savings, their retirement savings rise to 80% of the standard need, as opposed to 35% when the home is excluded from savings. Granted, a home isn't easily liquidated into cash, but in a typical retirement plan, a retiree will downsize from the family home into something smaller. If the new home happens to reside in an area with 275 days of sunshine a year, it certainly can't hurt. It doesn't sound like a bad plan, but the ever-progressive boomers want absolutely nothing to do with their parents' version of retirement. They don't even want to acknowledge that they're retiring, much less plan for it by selling out and settling down. Nearly 40% of all boomers surveyed by the AARP said they "could not imagine [themselves] retired," and only 16% plan to stop working during their retirement years. They're stubbornly resistant to the idea of moving in general and are less receptive to the idea of moving into a smaller property. In fact, boomer homeowners are trending in the opposite direction of their parents. Their properties are already larger than the national average, according to the National Association of Home Builders--but they would prefer to have even larger homes, averaging between 1,933 square feet and 2,273 square feet. To be fair, baby boomers weren't alone in their quest for size: Almost everyone surveyed by the NAHB preferred to have a larger home. (It seems you can never have too much space.) But it's not just in home sizes that baby boomers are making their presence felt in the real estate world. Another study from the AARP (previously known as the American Association of Retired Persons before the name was dropped in 1999 to avoid reference to the "r" word) found that only 21% expect to move to a new geographic area, and only 35% expect to scale back their lifestyles during retirement. Although many boomers are probably living in an empty nest for the first time--assuming they successfully kicked their kids out of the house or sent them off to college--there is no evidence that boomers are even beginning to downsize, according to Kermit Baker, a senior research fellow at Harvard University's Joint Center For Housing Studies. "Around 90% of all households would like to stay in their current home, and it's only financial or health issues that prevent people from doing that," Baker says. Instead, baby boomers have become prodigious remodelers. In fact, they are so eager to stay put and remodel their homes that the Remodelors Council of the NAHB rolled out a special program to allow remodelers to undergo training to become--believe it or not--a "Certified Aging-in-Place Specialist." These are remodelers that are "specially trained to do the kinds of home modifications homeowners want and need as they grow older in their homes," said Dan Bawden, of the NAHB Remodelors Council Board of Trustees in Houston, Tex. Remodeling Magazine's 2001 "Cost Vs. Value" study looks at the average cost of 16 different type of remodeling jobs across the country and found that while remodeling certainly improves a home's resale price, homeowners rarely recoup total costs of a job. (They can, however, make back somewhere between 60% to 80% on most jobs.) If the average homeowner can't recoup the expense of remodeling, it's not likely that baby boomers will be able to recoup the expenses of such "aging-in-place" conveniences as handrails, ramps and stair-escalators as do older homeowners that don't have the broad appeal of an upgraded kitchen. By staying put, though, boomers risk leaving themselves financially exposed to both economic and real estate downturns. While many of them may use their home to refinance nest eggs that evaporated in shares of drkoop.com and Qwest, if the economy continues to decline, they could even be forced to sell their homes in order to finance their golden years. But by carrying too much debt on their homes, many boomers run the risk of undermining the value of their property and further eroding their nest eggs. To insure against such an outcome, boomers whose primary asset is their homes may want to consider selling sooner rather than later. Not only do they no longer need the space, but they may find themselves even sooner needing the cash.
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