MONEY Debt

The Hidden Threat to Your Retirement

More older Americans are approaching their golden years with heavy debt loads.

When Wanda Simpson reached retirement a couple of years ago, the Cleveland mom had an unwelcome companion: Around $25,000 in debt.

Despite a longtime job as a municipal administrator, Simpson wrestled with a combination of a second mortgage and credit-card bills that she racked up thanks to health problems and a generous tendency to help out family members.

“I was very worried, and there were a lot of sleepless nights,” remembers Simpson, 68. “I didn’t want to be a burden on my children, or pass away and leave a lot of debt behind.”

New data reveal that Wanda Simpson has company—and plenty of it.

Indeed, the percentage of older Americans carrying debt has increased markedly in the past couple of decades. Among families headed by those 55 or older, 65.4% are still carrying debt loads, according to the Washington, D.C.-based Employee Benefit Research Institute (EBRI). That is up more than 10 percentage points from 1992, when only 53.8% of such families grappled with debt.

“It’s a two-fold story of higher prevalence of debt, and an uptick in those with a very high level of debt,” says Craig Copeland, EBRI’s senior research associate. “Some people are in real trouble.”

To wit, 9.2% of families headed by older Americans are forking over at least 40% of their income to debt payments. That, too, is up, from 8.5% three years earlier.

The only bright spot in the data? The average debt balance of families headed by those over 55 has actually decreased since 2010, according to EBRI, from $80,564 to $73,211 in 2013.

Still sound high? It is especially so for those heading into reduced earning years, or retiring completely.

The primary culprit, according to Copeland: rising home prices and the longer-term mortgages that result, often leaving seniors with a monthly nut well into their golden years.

Seniors are even dealing with lingering student debt: 706,000 senior households grappled with a record $18.2 billion in student loans in 2013, according to the U.S. Government Accountability Office.

It’s not an easy subject to discuss, since older Americans may be ashamed that they are still dealing with debt after so many years in the workforce. They do not want to feel like a burden on their kids or grandkids, and so keep their financial struggles to themselves.

But financial experts stress that not all debt is automatically bad. A reasonable mortgage locked in at current low rates, in a home where you plan to stay for a long period, can be a very intelligent inflation hedge.

“I always suggest clients consolidate it in the form of good debt, like a mortgage on your primary residence,” says Stephen Doucette, a planner with Proctor Financial in Sherborn, Massachusetts. “You are borrowing against an appreciating asset, you don’t have to worry about inflation increasing the payment, and the interest is deductible.

As long as this debt is a small portion of your net worth, it is okay to play a little arbitrage, especially considering stock market risk, where a sudden decline could leave older investors very vulnerable.

“A retiree who has debt and a retirement account with equity exposure may not have the staying power he or she thinks. The debt is a fixed amount; the retirement account is variable,” says David Haraway, a planner with LPL Financial in Colorado Springs, Colo.

It is important not to halt 401(k) contributions, or drain all other sources of funds, just because you desire to be totally debt-free. Planner Scot Hansen of Shoreview, Minn. has witnessed clients do this, and ironically their good intentions end up damaging years of careful planning.

“But this distribution only created more income to be reported, and more taxes to be paid. Plus it depleted their retirement funding source.” he says.

Instead, take a measured approach. That’s what Wanda Simpson did, slowly chipping away at her debt with the help of the firm Consolidated Credit, while living off her Social Security and pension checks.

The result: She just sent off her final payment.

MONEY housing

Boomers’ Homes Are Once Again Their Castles

House in Colorado
Getty Images

A new study looks at the relationship older Americans have with their homes and finds some surprises.

Aging Baby Boomers apparently missed the memo about how badly they’ve prepared for retirement. While study after study highlights inadequate retirement savings and planning, a new survey and report sponsored by Merrill Lynch finds that a broad cross-section of older Americans are eagerly looking forward to new adventures and, especially, freedoms, in their later years.

“Home in Retirement: More Freedom, New Choices,” prepared for Merrill Lynch by the Age Wave consulting firm, focuses on the age-related transitions that people are making in the way they live and how they regard their homes. According to the study, nearly two-thirds of retirees say they are now living in the “best home of their lives” and making active efforts to create living spaces that match their new retirement lifestyles. Nearly as many say they are likely to move during their retirement years, and most of this group has already relocated once.

“When I look out at the future of our aging population, I have concerns, too,” said Ken Dychtwald, head of Age Wave and a longtime leader in aging research. “I am not a beginner at this. But I think a lot of our worries are not a fait accompli,” he said. “I think we have, to a fair extent, overemphasized the misery of aging.”

After lives largely determined by work and family responsibilities, boomer retirees find they are experiencing a new sense of freedom about where and how they live. An estimated 4.2 million retirees moved into new homes last year alone, the report found. And while downsizing is often recommended as a new lifestyle for retirees, nearly a third of retirees who relocated actually moved into larger homes. (One reason: One out of every six retirees has a “boomerang” child who moved back in with them.)

Only one in six retirees who moved last year wound up in a different state, emphasizing the strong attachments that boomers have to their existing communities. Among future retirees, 60% say they expect to stay in their current state while 40% want to explore other parts of the country.

From their 60s to their late 70’s, people “think of this as a great time and a time of great freedom,” Dychtwald said. “That word—freedom—came up over and over again.”

Reaching age 60 seems to represent a “threshold event” for people, added Cyndi Hutchins, director of financial gerontology for Bank of America Merrill Lynch. With careers winding down and children out of the house, people take a new look at their futures. Another transition occurs in the early to middle 70s, when many begin to slow down and become less active. “We see a spike in that freedom threshold again at that age,” she said. “We see retirement as a succession of different time periods.”

Whether people move or not, or downsize or not, their homes assume added significance, the study found. “Prior to age 55, more homeowners say the financial value of their home outweighs its emotional value,” the report said. “As people age, however, they are far more likely to say their home’s emotional value is more important than its financial value.” More than 80% of people aged 65 and older own their own homes, and more than 70% of them have paid off their mortgages.

If boomers do reinvest in their homes, it would provide a major boost to the housing and home furnishings business. In the next decade, the study notes, the number of U.S. households will increase by nearly 13 million, with nearly all of this growth—nearly 11 million—occurring among people aged 65 and older.

“Age 55+ households account for nearly half (47%) of all spending on home renovations—about $90 billion annually,” the report noted. “While younger households slowed or reduced spending on home renovations between 2003 and 2013, spending among those age 65+ increased by 26%.”

Common renovations among retired homeowners include: home office (35%), improved curb appeal (34%), a kitchen upgrade (32%), improved bathroom (29%), adding age-friendly safety features in a bathroom (28%), and modifying their home so they can live on a single level if needed (15%).

The report found the South Atlantic states were the favorite place for people to live and to relocate, followed by Mountain and Pacific states.

It also echoed other research that finds people overwhelmingly prefer to “age in place” in their own homes, with 85% of people preferring this option as opposed to moving to a senior or assisted living community.

Leading age-ready home features include a no-step entry; single-floor living; extra-wide hallways and doors; accessible electrical controls; lever-style handles on doors and faucets; bathroom safety features, and, accessible countertops and cabinets.

The Merrill Lynch study is the fifth in its series of seven planned reports dealing with people’s life priorities for their health, home, family, finance, giving, work, and leisure. Its findings are based on a survey of more than 3,600 adults representative of the broader U.S. population in terms of age, income, gender and place of residence.

Philip Moeller is an expert on retirement, aging, and health, and co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

TIME Race

Minorities Face Significant Barriers to Home Ownership in the U.S., Report Says

'It's clear that the housing playing field remains strikingly unequal in this country'

Minorities continue to face significant barriers to home ownership in the U.S., according to a new report.

The report, released by online real estate database Zillow, shows a significant disparity in home ownership, property values and home loan approval rates between white and minority communities.

Read More: The Long, Tangled Roots of the Michael Brown Shooting

More than 25% of loan applications by black applicants in the U.S. are denied, compared with 10% of their white counterparts, the report found. Additionally, nearly three in four white Americans own their homes, compared to less than half of black and Hispanic Americans.

The value of homes owned by minorities also tended to be less stable. While prices in white neighborhoods have largely recovered from the economic downturn of 2008, home prices in predominantly black and Hispanic neighborhoods remain well below peak levels.

“It’s clear that the housing playing field remains strikingly unequal in this country,” Zillow Chief Economist Stan Humphries said in a statement.

TIME Innovation

Five Best Ideas of the Day: February 6

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. To salvage democracy in Afghanistan, leaders must make the next election really work.

By Tabish Forugh in Foreign Policy

2. In a U.S. first, New Orleans finds homes for all its homeless veterans.

By Noelle Swan in the Christian Science Monitor

3. As rich nations plan the next decade’s agenda for global development, they must bring human rights and accountability to the fore.

By the United Nations News Centre

4. Science and the media need each other. They just don’t know it yet.

By Louise Lief in the Wilson Quarterly

5. This simple Lego contraption allows scientists to safely handle insects.

By Emily Conover in Science

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME real estate

These Are the Cities With the Largest Homes

many-green-houses-large-red-house
Getty Images

Not so surprisingly, the cities with the largest homes are on the whole more sparsely populated than major urban cities in the U.S.

This post is in partnership with 24/7 Wall Street. The article below was originally published on 247WallSt.com.

American families tend to spend about a third of their annual income on housing. Yet, depending on their location and the level of the family’s income, home sizes can vary widely. Based on data from property listings website Realtor.com, the largest homes in the U.S. are located in the Provo-Orem, Utah metropolitan statistical area, with a median home containing nearly 2,000 square feet.

Areas with the largest median home sizes also had among the nation’s higher estimated median home prices. Homes in seven of the 10 urban areas had median prices of more than $200,000 as of November 2014. A typical home in Boulder, Colorado cost $380,000, the 14th highest estimated median home price among all large metro areas.

While it is not particularly surprising that larger homes cost more, in many spacious homes were also pricier by square foot. In seven of the 10 cities the median price per square foot of property was in the top half of all metro areas reviewed, at over $105.

Relatively high incomes are required to afford these larger homes. All of the areas with the largest homes had median household incomes well above the national figure of $52,250 in 2013. Residents of Boulder were particularly wealthy, with a median household income of more than $71,000 last year.

While large urban areas tend to be relatively densely populated, the areas with the largest homes are on the whole more sparsely populated. The population density was well below the average across all metro areas of 6,321 people per square mile in all of these areas. Raleigh, North Carolina had just over 1,850 residents per square mile, one of the lower densities nationwide. By contrast, the areas surrounding Los Angeles, San Francisco, and New York City all had well over 10,000 people per square mile.

To identify the cities with the largest houses, 24/7 Wall St. reviewed median home square footage in the 200 largest core-based statistical area (CBSA) from Realtor.com. CBSAs are larger than most other geographies organized by the Census Bureau, and they often include several metropolitan areas. Median household income and educational attainment rates came from the Census Bureau’s American Community Survey. Figures on population density are from the 2010 Census. Metropolitan area names and boundaries may have changed slightly since the data was collected. Unemployment rates came from the Bureau of Labor Statistics and are for October 2014.

These are the cities with the largest homes.

10. Dallas-Fort Worth-Arlington, Texas
> Median square feet: 1,828
> Median estimated price: $150,000 (88th lowest)
> Median household income: $57,398 (62nd highest)
> Unemployment rate: 4.8%

The living space of a typical house in the Dallas-Fort Worth area was 1,828 square feet, the 10th largest median home size in the nation. Most metro areas with the most spacious homes are relatively sparsely populated — perhaps freeing space for larger construction projects. Less 4,000 people lived in a square mile in Dallas in 2010, among the lower population densities. By contrast, the average metro area had 6,321 people per square mile. High incomes also likely explain the area’s large homes. A typical area household earned $57,398 last year, versus the national median household income of $52,250. This figure was also third highest among the 25 metro areas in Texas.

9. Austin-Round Rock, Texas
> Median square feet: 1,837
> Median estimated price: $207,000 (57th highest)
> Median household income: $61,750 (32nd highest)
> Unemployment rate: 4.0%

As in several other areas in Texas, Austin area residents seem to prefer larger homes compared to most Americans. A typical house in the region contained 1,837 square feet of living space. The median price of $207,000, however, was on the high end. The area is home to some of the state’s wealthiest and most well-educated residents. A typical household brought in $61,750 last year, the second-highest figure in for a metro area the state. Also, 41.5% of adults had attained at least a bachelor’s degree as of last year, one of the highest rates nationwide and the highest rate in Texas. The unemployment rate was also well below the national unemployment rate, at just 4.0%.

8. Fort Collins, CO
> Median square feet: 1,851
> Median estimated price: $272,000 (29th highest)
> Median household income: $59,052 (50th highest)
> Unemployment rate: 3.0%

The large homes in Fort Collins reflect the area’s prosperity. Just 3.0% of the area’s workforce was unemployed in October, far below the national rate. Area residents were also well-educated, with 43.3% having attained at least a bachelor’s degree as of 2013. The strong economy and well-educated populace helped raise incomes in the area, which in turn may have afforded residents the luxury of larger homes. A median home was quite spacious, with more than 1,850 square feet. Fort Collins’s was relatively sparsely populated, at just 2,712 residents per square mile in 2010. By comparison the average metro area had 6,321 people per square mile.

7. Greeley, CO
> Median square feet: 1,854
> Median estimated price: $224,000 (44th highest)
> Median household income: $58,611 (54th highest)
> Unemployment rate: 3.6%

Greeley had just 2,212 residents per square mile in 2010, one of the lower densities reviewed. Being a less crowded community may have helped encourage residents to build larger homes. Area homes were not only large, but also relatively expensive. The median home price in Greeley as of this past November was $224,000, among the higher values for a large metro area. Greeley’s home prices have increased at a faster rate than homes across the nation over the last five years. Residents were also relatively wealthy in 2013, with a household median income of $58,611.

For the rest of the list, please go to 24/7WallStreet.com.

MONEY Housing Market

Why More Home Buyers May Be Trading Up to Bigger Digs This Spring

fish jumping into bigger fishtank
Phil Ashley—Getty Images

A tight inventory of houses for sale has been stymying buyers who want to trade up. That could change soon.

Joe and Debbie Valerio, a couple in their 60s, put their Westport, Conn., home of more than 20 years on the market because it was getting too big for them.

When they found a nearby condo they loved, they pounced. That set off a chain reaction allowing Peter and Leah Baiocco, a couple in their 30s, the ability to trade up.

The Baioccos lived a few miles away, contemplating a future move to a bigger home once kids came along. With favorable economic conditions, they jumped at the chance to buy the Valerios’ $2.7 million house last April. After renting it out for nearly a year, the Baioccos’ starter house in Fairfield, Conn. is on the market for $739,000.

This seemingly simple sequence of events is still relatively rare in the U.S. housing recovery. Despite an improving economy and rock-bottom rates, inventory of available homes is inconsistent. Anything more than a trickle of listings sends prices down, causing sellers to pull their homes off the market.

Then prices go up again because competition gets fierce, and sellers re-emerge. As a result, a bustle of trade-up activity is expected for this spring’s selling season, before conditions change again.

“I think a lot of people have made a lot of money in the stock market the last few years. People who want to enjoy a luxury home, now is the time. Everyone has more cash available to them,” says Ken Barber, a real estate agent in Wellesley, Mass.

Other positive signs: new single-family housing starts are at a high since 2008, according to the Commerce Department’s latest report.

Also, fewer homeowners are renting out their homes to delay selling them, down to 35% in 2014 from 39% in 2013, according to Redfin, a real-estate brokerage.

And more consumers have positive equity. Last spring, 19% of homeowners in Redfin markets (such as Atlanta and Philadelphia) had low or negative equity. That was down to 11% in November. Nela Richardson, Redfin’s chief economist, expects it to hit 8% by March 2015.

Even better for buyers, interest rates are near-historic lows below 4%. “The question of staying versus leaving is shifting. For people who were afraid to leave their mortgage because they thought it was the best they’re ever going to get, now there is another good mortgage around the corner,” Richardson says.

Those trading up in 2015 should hit a sweet spot of selling near the top but not buying at the top, says Margaret Wilcox, an agent from agent in Glastonbury, Conn., for William Raveis.

Wilcox says a client couple recently traded up from a $500,000 house to a $1 million home. They did not get quite the price they wanted for the sale of their old home, but they got a discount of nearly $300,000 on their new purchase, Wilcox says.

There are a few red flags for buyers and sellers. Seller confidence is still low, with just 35% of sellers thinking now was a good time to sell, versus 48% the previous year, according to Redfin.

Keith Jurow, a housing market analyst who writes the Capital Preservation Real Estate Report, is something of a doomsayer and thinks talk of a housing recovery “is phony and only an illusion,” he says.

Given the number of mortgages originated between 2004 and 2010, he feels that too many of the people who would like to trade up still have little or no equity in their homes and are not prepared to do a sale below their purchase price.

“Unless you bring more cash to the table, you can’t trade up,” Jurow says.

Also, foreboding makes some people want to act now. They do not want to be the family that missed their chance, adds Bob Walters, chief economist for Quicken Loans. “People won’t delay forever,” he says.

The Valerios and the Baioccos have only happy thoughts about their real estate choices. They love their new homes.

“In our mind, it’s the house we’re going to be in forever,” says Peter Baiocco.

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