Retirement Living News

July 2009

HEADLINES  (Click on headline to read story)

• Report Says Boomers Need More Information to 
  Leverage Home Equity in Retirement
• Temp Firms Seeking to Profit by Placing Older Workers
• Retirees Returning to the Work Force As Entrepreneurs
• Gallup Poll Shows Growing Concern About Retirement Income
• Comptroller Dugan Urges More Consumer Protections 
  for Reverse Mortgages
• New Book: A Simple Guide to Retirement: 
  How to Make Retirement Work for You

Archive of Past Issues                          New Retirement Communities

NEWS STORIES

Reports Says Boomers Need More Information to 
Leverage Home Equity in Retirement 

The current economic environment is putting pressure on older homeowners to find new sources of retirement income and stretch their savings. A new report from MetLife's Mature Market Institute, in collaboration with the National Council on Aging, recommends that boomers become more educated in the use of home equity and reverse mortgages to support their financial needs in retirement. Growing numbers are starting to tap their housing wealth. However, with little guidance, they are unsure about how to include this asset as an integral part of their financial strategy, rather than as a last resort. 

"There is no doubt that Americans should be more strategic about using home equity," said Sandra Timmermann, Ed.D, director of the MetLife Mature Market Institute in Westport, Conn. "Retirees need a new framework for thinking about how home equity can help assure their financial security and enable them to age in place without fear of running out of money." 

The study, titled Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, highlights different options for using home equity that are not part of the current national conversation. These include: 

• "The use of reverse mortgages to delay the age at which one might begin to collect Social Security, thus increasing the amount of one's ultimate monthly Social Security income. 
• Reverse mortgages as a stopgap measure to consolidate credit card debt, to cover investment losses or defer mortgage payments. 
• Periodic distributions that would tap home equity to help people meet expenses if they outlive their savings/retirement income. 
• Programs that combine public benefits with modest amounts drawn from home equity to help seniors stay at home. 
• Home equity lines of credit for emergency spending, such as home maintenance, without which many homes decay and lose value. 
• Reverse mortgages with a line of credit option for borrows to pay out-of-pocket health and home care expenses. Borrowers only pay the amount they use from the loan. 

"Our research on baby boomers indicates that they are more open than previous generations to tapping home equity and considering reverse mortgages to help fund their retirement," said Timmermann. "With the right guidance and policy protection, reverse mortgages can be an important financial option for boomers who do not have adequate savings." 

To view the 32-page report, click here. 
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Temp Firms Seeking to Profit by Placing Older Workers

The recession is proving difficult for some temporary staffing firms, including Robert Half International. While its sales plunged in the first quarter of the year, the firm sees a future in tapping into a pool of skilled baby boomers looking for work. The fastest area of growth is workers with 15 to 20 years of experience, says RHI Chief Executive Harold "Max" Messmer Jr. 

An influx of highly skilled temps could benefit temporary staffing firms. Such workers are more profitable than younger employees because companies are willing to pay more to get them. For RHI, the broader range of experience helps it move beyond its core business of accounting and finance jobs into such fields as technology, law, and marketing. Utilities, banks and mortgage companies want to hire temps with experience in regulation and restructuring. Also, a highly skilled temp has the added benefit of being able to train the company's permanent staff.

Many older workers now need the income because they were laid off or their nest eggs have shrunk. Small and mid-size companies are now seen as good targets for temp firms. RHI competitors such as Zurich-based Adecco and Aerotek of Hanover, Md., are also eager to take on older workers. These firms and others are looking for flexible, highly skilled temporary employees because it's much easier to end an assignment than terminate employment. 

Below are the job web sites for these three companies: 

Robert Half International -- http://www.rhi.com/
North America Recruiting Adecco -- http://www.adeccojobs.com/ 
Aerotek -- http://www.aerotek.com/Jobs-Employment/Default.aspx
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Retirees Returning to the Work Force As Entrepreneurs

In recent years, the number of individuals starting their own businesses during what is usually considered the "retirement years" has been rising, according to economists and small-business observers. And so has the age at which they are starting their own ventures: According to the non-profit AARP Public Policy Institute, in 2008, 21% of the self-employed were between 55 and 64, while 10% were 65 and older. Of course, not every self-employed senior is an entrepreneur, but experts believe the stock market's recent brutalization of retirement accounts will prod additional older Americans to start their own businesses. 

A combination of economic volatility as well as the growing number of baby boomers with time, energy, and money on their hands has redefined the starting age for new startups and has led to a surge in senior citizen entrepreneurs. This is a category that is only recently being studied. 

While many seniors have elected to become first-time entrepreneurs after 60, a number of economic factors and a job market perceived to be biased against older workers have pushed a number of people into starting their own businesses. With many retirees finding their pensions and 401(k) plans dented and a rising U.S. unemployment rate, now at 9.4%, the trend toward aged entrepreneurs is poised to grow. 

Sara Rix, a strategic policy adviser at AARP, says that in a recent AARP survey people were asked what they expected to do when they retire, and 15% responded that they were going to go into business for themselves. "Unemployment rates are lower for the older population," she says. "But they are increasing for those 55 and up. And it's been dramatic since this recession began." 

Rix notes that when older people are laid off, they remain unemployed longer than their younger counterparts. They also are subjected to a number of barriers such as the perception that they lack marketable skills. "In that case," says Rix, "starting a business may seem the only feasible alternative in a down economy even though they might not have an easy go of starting a new business." 

We're witnessing a bona fide small-business revolution, as a whole new breed of business owners is emerging. These seniors are at an age when most people used to look for a sturdy rocking chair, a chance to putter in the garden, or tip in a few putts at the golf course, these men and women are launching serious business ventures. 

There are as many as 1 million "seniorpreneurs" -- men and women between age 55 and 64 -- who may be starting businesses each year, reports the University of North Florida (May 2007). Plus, AARP reports that as many as 40 percent of American entrepreneurs are over 50. Business start-ups by men and women age 55 or older increased by 35 percent between 2001 and 2005. More telling, these businesses now represent 28.7 percent of all self-employed workers. That's the highest percentage among all age groups. 

Why this big surge in seniors starting businesses? Here are 10 good reasons: 

• They are retiring earlier, sometimes in their late 50s, rather than in their late 60s. " They are living longer. In 1900, life expectancy at birth was 47. Today it is 77. Many of them could end up spending more time in retirement than they did in the work force. 
• They are healthier and more active than past generations. 
• Some need the money. Most people retiring today are not financially prepared to live off savings for two, three or four decades. 
• Too many are bored. One survey found that many retirees "lamented the loss of usefulness after retirement and spent half of their free time watching television." 
• Many cherish the freedom. If the choice is working for $7 an hour as a department store greeter or setting up their own businesses, well … 
• Many are not ready to give up control of their time and their lives. They still have a lot to say and do and accomplish. 
• Starting a business lets them prove to themselves and the rest of the world that they are not quite done making their mark yet. 
• Most of them like the flexibility of doing something because we want to rather than because they have to. 
• Many still love the flat-out thrill and challenge. They're not ready to settle back and play it totally safe. They need and want the rush of adventure, of pitting their decades of skill against the rest of the world. 

Editors Note: Whether you are looking for a job or thinking about becoming an entrepreneur, you will want to check out the resources in our Jobs for Seniors section. 
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Gallup Poll Shows Growing Concern About Retirement Income

For the first time this decade, a majority of non-retired Americans, 52%, doubt they will have enough money to live comfortably once they retire; only 41% say they will. In 2002, by contrast, 59% of non-retirees were confident that they would have enough retirement income to live comfortably. 

This year's update, included as part of Gallup's annual Economy and Personal Finance survey conducted April 6-9, also shows an 18-point drop in this measure among non-retirees compared to just five years ago. This marks the first time since Gallup has been tracking the measure that a majority of those not retired say they will not have enough money to live comfortably in retirement. 

The reasons for this rising concern about retirement income become clearer when one examines trends in how much non-retirees expect to rely on each of 10 income sources in retirement -- 401(k) or other retirement savings accounts, Social Security, home equity, pensions, part-time work, savings accounts or CDs, stocks or stock mutual fund investments, annuities or insurance plans, inheritances, and rent/royalties. 

One of the biggest changes concerns non-retirees' views of their 401(k) and other tax-exempt plans such as IRAs and Keogh plans. In Gallup's first reading of this measure in 2001, almost 6 out of 10 non-retirees said these would be a major source of income when they retired. That percentage has fluctuated since then, but this year's 42% reading is the lowest Gallup has measured. It also represents a drop of 12 points since last year. There is little doubt that this reflects the major drop in the stock market over the last year, and the resulting "statement shock" that has confronted many workers when they open up their 401(k) statements and see the major decline in their overall value. 

There has been a more modest decline since 2001 in perceived reliance on individual stock or stock mutual fund investments. Never high to begin with (in 2001, 24% said these would be a major source of retirement income), this year's percentage is the same as last year's (17%) -- which is the low reading for the decade. 

Perceived reliance on a work-sponsored pension plan is also the lowest Gallup has measured. Just 24% of non-retirees say this will be a major source of retirement income. That can be compared to 34% in 2001, and 31% as recently as two years ago. 

Given the decline in the value of other investments, one might expect that more Americans would say they are going to rely on Social Security as a major source of retirement income. But that has not occurred. The 30% of Americans who say Social Security will be a major source of income is actually down one percentage point from last year, and not substantially different from what has been measured across the previous years of this decade. 

Americans now have a more pessimistic attitude about funding their retirement than they did a few years ago. They have been told repeatedly in recent years that Social Security alone will not provide enough to live on -- and even that the Social Security system will eventually run out of money. Although fewer people enjoy the potential benefit of a traditional pension plan today, they now realize that more of their retirement income will need to come from their own resources. 

It's worth noting that despite the sharp decline in expected reliance on 401(k) and other retirement savings plans, these remain at the top of the list when Americans are asked how much of a source each of the 10 different income streams will be in their retirement years. This signals that expected comfort in retirement could increase if the stock market continues to pull out of its current slump in the months ahead. Still, given the maxim "once burned, twice shy," many Americans may never again believe that their personal savings plans are going to grow inevitably and steadily in the years before they retire, leaving open the possibility that their worries will continue regardless of external circumstances.
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Comptroller Dugan Urges More Consumer Protections
for Reverse Mortgages

Comptroller of the Currency John C. Dugan warned last month that reverse mortgages pose significant compliance risks and said regulators should get out in front of this issue, before real problems develop, so that these loans are made "in a way that is prudent for both lenders and borrowers." 

"While reverse mortgages can provide real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages -- and that should set off alarm bells," Comptroller Dugan said. The experience with subprime mortgages "clearly demonstrates the link between compliance and safety and soundness." 

The Comptroller said the regulatory agencies should ensure that interagency guidance being worked on is sufficiently robust to ensure that consumers are adequately protected, and he said the OCC would examine national banks to ensure compliance with the guidance as well as relevant existing regulations. But he said it may turn out that guidance alone is not enough to address the consumer protection issues surrounding this new product. 

"In these circumstances, more definitive regulatory standards may need to be adopted, and the OCC is prepared to do that -- even if the standards we advocate initially apply only to reverse mortgage lending by national banks," he said in a speech to a regulatory compliance conference sponsored by the American Bankers Association. 

Reverse mortgages provide a source of income or line of credit to elderly homeowners by allowing them to tap the equity in their home without having to sell or move out of the home. The underwriting on these loans is nontraditional since no repayment is required until the homeowner dies, permanently moves out of the home, or fails to maintain the property or pay property taxes. If the home is sold to repay the loan, the borrower is not responsible for any loan amount above the value of the home. Any remaining equity above the amount due belongs to the borrower or the borrower's heirs. 

While some lenders offer their own proprietary products, 90 percent of all reverse mortgages are insured by the Department of Housing and Urban Development's Federal Housing Administration, and known as "home equity conversion mortgages," or "HECMs." 

Dugan said the ability of consumers to access their home equity through immediate and large lump sum payments can pose substantial risks. For example, lenders may simultaneously and aggressively market investment, insurance, or annuity products or, worse, attempt to condition loan approval on the purchase of such products. Likewise, with access to large lump sums upon closing, elderly borrowers can be particularly vulnerable to coercive sales of annuity and long term care insurance products that are expensive and may not be appropriate to their needs. 

"Another risk is that reverse mortgage borrowers, because they have no immediate repayment obligations, may overlook substantial fees that are attached to the loan," Dugan said. "And consumers who spend their loan proceeds quickly or unwisely may end up short of the funds they need for home maintenance or property taxes, with disastrous consequences: the failure to make those payments can result in foreclosure." 

The Comptroller also expressed concern about misleading marketing claims, especially if the product's incentives and fees put more of a premium on making the loan than on ensuring it is appropriate for the borrower. 

"Even when consumers are not subject to misleading or deceptive marketing, they still may have a hard time understanding the complex nature and costs associated with reverse mortgages," he said. "If a consumer doesn't fully understand how much the loan will cost, how much can be borrowed, or all the circumstances under which the loan can become due, then the risk increases for a transaction that is not appropriate to the consumer's needs." 

In closing, Dugan said that while much attention still needs to be focused on dealing with the economic downturn, regulators can't afford to ignore consumer issues. "We need to be on constant alert to emerging risks and vigilant in our regulatory        
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New Book: A Simple Guide to Retirement: 
How to Make Retirement Work for You

A Simple Guide to Retirement: How to Make Retirement Work for You is written as a practical guide to help prepare retirees and their families for the changes and challenges facing them in an uncertain economic, social, and political climate. Millions of people retire each year with unrealistic expectations. They think retirement will be a time of calm and peace. Yet for many it becomes a time of inactivity, sadness, and role confusion. This, in turn, can lead to depression, a decline in health, financial woes, and substance abuse. 

It is a book for older Americans planning for retirement. It is also for people who have left work before they were ready and are now experiencing anxiety, depression, and/or financial weakness in their new role as retirees. 

Written to be at once affirming, positive, and practical, the book covers all of the many topics that will help retirees better prepare themselves for a positive, fulfilling, and satisfying retirement--beginning with financial security. These topics include saving for retirement, working part time, staying healthy and fit, dealing with the emotional and financial burden of health care, cultivating optimism, and much more. Case examples and vignettes will help readers apply the principles to their own lives. 

Published in May 2009, the hardcover book (176 pages) is written by Morley D. Glicken and Brian Haas. Glicken is on the faculty at Arizona State University and is director of the Institute for Positive Growth: A Research, Treatment, and Training Institute in Prescott, Ariz. Haas is the president and portfolio manager for Haas Capital Management, LLC, a Prescott, Ariz.-based Registered Investment Advisor.
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