10 Things Baby Boomers Don’t Want you to Know

Baby BoomersI found this funny and useful article on Marketwatch.  Full article at http://www.marketwatch.com/story/10-things-boomers-wont-tell-you-2013-07-12 – good information for those wondering how your house fits into your retirement years.  Or for those of you who will be responsible for selling your parents’ home.

Why am I as a Realtor highlighting this article? As a boomer myself it was partially funny and partially scary.  But I am sharing because, for those of us, who will be woefully unprepared for retirement, our house is our greatest asset and so we need to consider how the equity will fill the gap in our retirement income.

1. Leaving Money to Our Kids is not a Priority.

2. Make Room Kids, We’re Moving in With You When we are Old. 

This is the one that is relevant to Real Estate.  Estimates are that most Baby Boomers have saved less than half what they will need for retirement. And that medical costs could run the average Boomer $300K in their retirement years – that’s what will not be covered by Medicaid.  So it is super important to think about how your home figures into the equation.  For most of us, it is the biggest asset we have.

Medicare provides healthcare coverage for citizens over 65 (mostly).  It comes as a surprise to many retirees that Medicare does not does not cover nursing home costs.   In order to qualify for Medicaid, the recipient must be poor, which means you have to spend down all of your assets on the nursing home costs before you would qualify for Medicaid.

In the Boston area, these costs can easily run $10,000 a month, so for most people, it would not take long to run through your life savings.   At that point, Medicaid would take over.  But your house is still considered an asset and the Estate Recovery Act dictates that upon the death of the Medicaid recipient, the house be sold and the assets used to pay back what is owed to Medicaid.  So when you think you are leaving the house to the children, you are not.  You are leaving them a headache. as they have to deal with Medicaid and sell the home to pay back the debt.

What are the ways out of this?  One is to transfer the home to your heirs through a trust – at least 5 years before you believe you would be going into a nursing home.  Of course, you had better trust those heirs to do right by you.  But, then again, if you really will wind up living with them in retirement, it seems a fair trade.

The other option is to sell the house while you are relatively young, rent or buy a smaller home, invest the money and spend it to enjoy your retirement years. Then let Medicaid take over when those things run out. (Kids, see Things we Don’t Want You to Know #1).

You could buy Long Term Care insurance to cover nursing home costs.  Nowadays, the policies only cover 3 years of nursing home costs.  Don’t get me wrong – 3 years is helpful.  They cover that length of time because it is the average nursing home stay.   But should you have Alzheimer’s, you could spend a decade or more under nursing care.  That will certainly wipe out all assets.

Of course, you should sit down with an estate attorney and a financial planner before you make any decisions to sell or transfer your home.  What I am suggesting is that you do it sooner rather than later.  Once you or your parents, (if you are doing the planning for them), need a nursing home, it is too late to plan.  If you need recommendations, feel free to ask me.

3. …..and we Blame you for it (those damn college costs).

4. We can’t face reality (about what our health will be like in retirement).

This may play a big part in why we do not plan enough for medical costs.  And given things we don’t want you to know # 6,7,8 we WILL have medical costs.  And we will go a long stretch with those medical costs due to the wonders of medicine and pharmaceuticals that keeps up limping along with chronic conditions for many more years than our grandparents would have had.

5. Till death do us part doesn’t apply to us.

6. We’re Unhappy.

7. And we Eat our Feelings.

8. And we’re Addicts.

9. We will bury you in Debt.

10. We’re obsessed with Not Aging

I don’t mean to be depressing with this article.  The moral is PLAN, PLAN, PLAN and your retirement years will be much happier – for you and your children!


Want to talk about selling your home? Feel free to contact me.

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Michelle J. Lane

   Michelle J. Lane
   Century 21 Commonwealth
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How Boomers will Change Housing Market

   By Michelle J. Lane



The article below, supplied by MSN real estate, outlines how the aging of baby boomers will change the real estate market.  I read a very prophetic article about 20 years ago that predicted a glut of large houses by the year 2020 because 20% of the population would be 65 or older by then.   Makes sense when you calculate that the last of the boomers would be about 65 in 2020.  I wish I could remember who wrote that article and give him credit.   He could not have known that we would be hit by this very hard recession, but he accurately stated that our children would not be able to afford to buy our houses or even maintain them if they are left to them as part of an estate.

Out of the 135 houses on the market today (October 2012), 50% are  over $1M.  This time last year, it was 37%.  It is already happening!!!!!

In short – baby boomers will be healthier longer and live longer, so they are not moving to nursing homes or senior housing communities until later in life and will stay in houses longer.  Either staying in their current homes, moving to cities or campus towns, or living with their children (more likely, their children will live with them).

What this will mean for the real estate community is that the number of large, expensive houses on the market will continue to grow, condos closer to town centers or in the city will be in high demand – particularly ones that are on one level or have a first floor master and rentals will in higher demand.

It also means that baby boomers will need to work longer and/or make their money last longer.  In all fairness, many will want to work longer.  When social security was put in place, the life expectancy was 65.  It is now 79!  So what this tells me is that if you were born before 1965 you should seriously consider selling your big house now or make sure your children can afford it if you leave it to them as part of your estate.

The MSN article………..

By Bruce Kennedy
The demographics on aging in America are literally a gray area. The number of people age 65 and older in the U.S. is expected to rise to an unprecedented 55 million by 2020 — up 36% from 2010. By the end of this decade, nearly 40 million baby boomers — those born between 1946 and 1964 — will turn 65.

According to a new study by the Urban Land Institute, those so-called leading-edge boomers, the ones born between 1946 and 1956, will not act like prior generations as they approach the golden years. In fact, they’ll probably blow a hole through the way we look at retirement, housing and the elderly.

John McIlwain, the ULI study’s author, divides people over age 65 into three waves: the World War II-era “greatest” generation, the “silent” generation (ages 67 to 85) and the leading-edge boomers. These three groups, he says, will live longer than any generation before them, with many living past age 90 and even 100.

One of the biggest challenges facing this new breed of seniors, he notes, is that few will have the financial resources to support themselves through a longer retirement. “That’s going to put a demand on federal resources, as well as family resources and charitable resources,” he said in an interview. At the same time, people under age 35 are going through some of the hardest economic times since the Great Depression and will have to compete with their elders for limited resources.

McIlwain says this demographic change will have a major impact on the U.S. housing market. The leading-edge boomers are expected to be more healthy, active and independent — which means many will want to remain in their current homes. And those who do move, he says, will be looking for urban locations with smaller and easier-to-maintain housing where they can be close to friends, families, work, transportation and social amenities.

This change could lead to a decline for the estimated 50,000 housing communities across the U.S. providing nursing care for seniors. The recent economic downturn has made those facilities too costly for many families. And given that the average age of someone living in a senior facility is 84, such communities are having difficulty finding new residents.

How will the housing sector change in response? The ULI report says many of today’s seniors and baby boomers are creating new niche housing markets, including multigenerational living, which is rising at a faster rate than overall household growth in the U.S., as well as group living communities. College towns, which allow seniors to enjoy campus activities while being near children and grandchildren, are also expected to see more older residents.

Will Property Prices Need a Crutch as the Population Ages?

Or Do the Echo Boomers Offer an Elixir of Youth?

By Mark Heschmeyer

There has been much speculation that single-family housing prices could take a hit as increasing numbers of baby boomers downsize and leave larger homes behind as they move into retirement age. That assumption is too general to be entirely accurate, according a pair of major economic papers on the topic of aging and property prices.

What is clear is that this ongoing population shift holds important ramifications for the multifamily property sector, including senior and assisted living facilities.

“As Baby Boomers enter retirement age, many ’empty nesters’ may downsize, leaving their current homes in favor of smaller condos or age-restricted communities. Therefore, prices for large single-family homes located in high property tax areas could be under pressure over the next decade. “However, seniors today are often healthier and live longer; because of this we believe it is still premature to invest in assisted living or nursing homes.”

In terms of locations, we do not expect all seniors to relocate to Sun Belt cities. In fact, many seniors prefer to live near their children and grandchildren and to remain close to their lifelong friends.

John Rosenfeld, general counsel for Oxford Investment Partners in Phoenix, said that shifting single-family dynamic of baby boomers has been disrupted by the Great Recession and that has already helped boost the multifamily sector.

“Despite the popularity of various retirement investment vehicles, the largest part of most baby boomers’ nest egg is still their homes. Converting those real estate nest eggs into retirement cash could pose the prospect of a “correction” as the baby boomers become a sellers’ demographic,” according to Rosenfeld.

“The timing and severity of the Great Recession has interrupted this dynamic,” Rosenfeld said. “First, home devaluations of 30% or more over the past five years have depleted home equity, making it undesirable-even unfeasible-to sell in the current market.  We’ve seen this cause some retirees to describe themselves as “stuck” in their homes.”

“What this has done is temporarily push back the onset of the disposition trend for baby boomers and made that trend more dependent upon the dynamics of the residential market than the age of the boomers,” Rosenfeld said.

Rethinking Retirement

A second effect is more lingering,  The Great Recession has caused many baby boomers to rethink their retirement plans. Boomers not only lost significant home equity, but also had to dip into more liquid retirement savings. Many baby boomers suffered layoffs and significant reductions in household income during what should have been their prime earning years. The downturn has flattened and skewed the earnings curve for many boomers, causing them to push back their retirement date or ratchet down their expectations.

So boomers may be inclined to stay in their family homes for longer since they will be working longer. This could elongate the residential disposition timeline for the boomer generation overall, but result in a better fit with absorption.

Third, the Great Recession has caused an uptick in the residential rental market. This may have a mixed effect on housing values as baby boomers enter retirement. Today many people are not only renters of necessity, but by choice. That’s a reversal of a mindset that dates back to the early 20th Century, if not before.

What we are facing is a Lost Generation of homeowners, who would normally be buying the larger homes that the baby boomers are selling (or try to sell). Now we have a gentrified group of new baby boomers who worked hard for what they have and are suddenly facing the untenable situation of staying put in their ’empty nest’ homes, without being able to tap the hard earned equity that would have contributed to an easier lifestyle.

The underwater homeowners must stay put, must continue to work to keep what they have, and worse, cannot afford any health issues, as the cash reserve cushions are no longer available.  It is a truly scary situation for those experiencing it. Estimates are over 19 million people are in the same situation, with no solution in sight.

As far as senior living home prices, and retirement communities, these prices have been frozen in time as there are less and less qualified buyers, less people in the market without homes to sell , and all the while the safety cushion of retirement is plugged up.

What About the Echo Boomers?

Between 1945 and 1964 a total of 76 million to 79 million people were born. Now the children of the baby boomers qualify as an even larger demographic group. From roughly 1980 to 2000, 80 million or so echo boomers — Generation Y, Generation X, Generation Next, or whatever you want to call it – were born.

Scott Ostlund, principal and president of Ostlund Equities, which owns and rents single-family homes in throughout Nevada, Arizona and California, foresees demand for properties being shed by downsizing baby boomers being fueled by the echo boomer home buyers. As a result he claims the impact on single-family housing prices will be minimal or could even continue to drive property prices. Ostlund is also principal and senior vice president of Lee & Associates in Ontario, CA.

“Yes there is a big population of people shifting out of housing but the population of people buying houses is also growing,” Ostlund said. “There won’t be an oversupply. There are more people to buy properties and there hasn’t been any measurable new homes built in the last five years.”

“So how much of a degree does the shifting population demographics affect property pricing,” Ostlund asked. “It’s way way down the list,” he answered.

Pete Chinnock, senior associate with Penn-Florida Cos. in Boca Raton, FL, said he too thinks the echo boom will mitigate the impact of aging baby boomers.

“In my opinion it’s a very simple answer. It’s as easy as Accounting 101, “Supply and Demand,'” Chinnock said. “We go through one of these economic cycles every seven to 10 years and real estate prices are always affected negatively and then positively. They always seem to come out the other side and peak higher than the previous peak.”

“The demand for single-family home ownership will always be a goal regardless of age and as long as the combination of internal birth rate and immigration continue to create increases in the population the demand for housing will continue to increase,” Chinnock said. “The only variable I see is the type of housing required, based on age, health care needs and economic ability, will shift between single-family, multifamily, senior housing and assisted living due to population demographics, and prices will follow the supply/demand curve for each.”

More About Credit Markets than Age Demographics

And there is economic theory to support Ostlund’s and Chinnock’s views that shifting population is not the most significant factor that will drive future property prices.

What made housing vulnerable to a bubble? And why has the housing market been so impervious to attempts at resuscitation?

Housing is unusually susceptible to booms and busts because simply because of credit conditions, according to Adam J. Levitin, professor of law at Georgetown University, and Susan M. Wachter, professor of real estate and finance at Wharton Business School at the University of Pennsylvania, in a current working economics paper entitled Why Housing?

“Housing market distress transmits to the macroeconomy through a balance sheet channel, a construction channel, and a collateral channel,” the two argue. “Because housing is credit-backed and such a large asset class, failure will impact the financial system itself and pull down the economy as a whole. The dual-use of housing, its ubiquity on consumer balance sheets, its highly correlated pricing, and its linkage to the macroeconomy make it a particularly painful type of asset bubble to deflate.”

In their working paper released this month, the two argue that when the baby boomers joined the workforce and started saving, money supply and property prices entered a rising trajectory.

“We conclude that demography was the long-run driver of this process, basing our argument on data from 22 advanced economies for the 1950-2010 period,” the two concluded. “According to our lifecycle model, large working-age populations saved for their old age by investing in property and broad money instruments, such as deposits. In the past, savings activity by baby boomers drove up property prices and also increased demand for money. As baby boomers retire, these dynamics will go into reverse.”


Ah! Youth

Yet another wrinkle to factor into this complex equation was put forth by Mark Russell, is the City Assessor for the City of Yonkers, NY. Just because there is an echo boom coming into its prime earning years, doesn’t necessarily mean they are as interested or in financial position to strive for their parents’ dream of homeownership.

“We have seniors that need to down size their homes or acquire a (single-level) apartment… and they will be unloading their homes in record numbers. But who will buy these homes?” Russell asks. “With oversupply, there has to be a reduction in price especially with gun shy young people that do not even know if their jobs are secure. Also a young person may want to maintain the flexibility of being able to relocate without the burden of unloading a home.”

“So you have an upcoming glut… due to downsizing, young people with less income and desire to be locked into anything for 15 to 30 years, and increasing requirements for down payments,” Russell said.

All signs point to long-term reductions in housing prices and ownership, and a more rapid increase in rental costs, Russell said.

Not so fast, adds Diane J. Macunovich, professor of economics at the University of Redlands in California. She suggests all the fuss over an aging population may be focused on the wrong age group. According Macunovich, what we should be worried about are the gaps in the youth populations that may trigger future recessions.

In her paper, The Role of Demographics in Precipitating Crises in Financial Institutions, more than 70% of major declines in the proportion of 15-to-24-year-olds in the population have been associated with declines in GDP growth, according to her study of worldwide data from 1960 through 2005.

“A boom in the population of young people seems to boost producers’ expectations,” Macunovich argues. Unfortunately, those producers fail to cut-back when the boom abates, “and the passing of the bubble causes defaults and bankruptcies, which prompt foreign investors to withdraw funds and speculators to unload the local currency.”

“This appears to have been the pattern in four financial crises since 1980, as well as Japan’s “lost decade,'” Macunovich argues.

Meanwhile, Clarion Partners’ Tim Wang sees several economic factors affecting this key age group that is and will continue to drive demand in the multifamily market.

“Multifamily properties primarily serve renters age 20-34. This demographic cohort is expected to increase substantially as Echo Boomers graduate from college. Most of them will not and cannot afford to buy homes. Tightened lending requirements, the flexibility of renting, large student loan debt, and the trend for young people to postpone marriage and start a family all affect decision making to the clear benefit of the rental property market,” Wang said. “Therefore, we believe that the demand for multifamily rentals is likely to remain strong over the next several years.”