During the Arab Spring we learned the term “waithood,” and following the prolonged economic stagnation in Japan, “parasaito shinguru.” In the US we have long heard much about baby-boomerangs. But from the ever-droll UK comes my personal favorite: “KIPPERS,” or “Kids in Parents’ Pockets Eroding Retirement Savings.”
As you’ve doubtless guessed, these are terms for adult children who have moved in with older parents due to economic pressures and a poor job market. And though many groan at the very thought, data suggest in many cases the trend is anything but toxic.
Around the world pressures are much the same: too many job seekers, too few jobs, and a rising cost of living. In the United States, adult kids are moving home in huge numbers – numbers so large, in fact, that they are setting all-time records. Add to this a rapid rise in life expectancy, and you get dynamics that begin to actually change social order and long-term behavior.
Though this trend presents a big, fat target for negative press, there are interesting things to note:
- A record 49 million Americans live in a family household that contains at least two adult generations (http://www.pewsocialtrends.org/2010/03/18/the-return-of-the-multi-generational-family-household/);
- When two adult generations of the same family live under the same roof, the older adult is the head of the household in about three-quarters of all cases (ibid);
- Parents whose adult children have moved home are “just as satisfied with their family life and housing situation as are those parents whose adult children have not moved back home” (http://www.pewsocialtrends.org/2012/03/15/the-boomerang-generation/2/).
And despite the derogatory – but admittedly funny – term “KIPPERS,” evidence points in a largely different financial direction.
Self-Designed Anti-Poverty Program
In their study entitled Fighting Poverty in a Bad Economy, Americans Move in with Relatives, Rakesh Kochhar and D’Vera Cohn write, “Without public debate or fanfare, large numbers of Americans enacted their own anti-poverty program in the depths of the Great Recession: They moved in with relatives.” The authors go on to say, “…the rise of multi-generational households in the recession could be viewed as the American public’s self-designed anti-poverty program.”
This combined-household trend is not lost on the nation’s builders. In a PulteGroup study released October 2012, Deborah Wahl Meyer, Pulte chief marketing officer, says many new homes now offer an upstairs and a downstairs master suite to accommodate multi-generational families (http://www.prnewswire.com/news-releases/pultegroup-survey-mom-and-dad-anticipate-future-roommates-174552451.html).
At some point, however, there are only so many ways to cut costs and combine expenses.
We’re Not Getting Younger – And Things Aren’t Getting Cheaper
In Six Major Drains On Boomers’ Bank Accounts, Pamela Villarreal of the National Center for Policy Analysis says, “Housing…is typically the largest monthly consumer expenditure” (Financial Planning online journal (http://alturl.com/ionsj).
Villarreal goes on to say that for homeowners between the ages of 55 and 64, “…expenditures on principal, mortgage interest, taxes, maintenance and insurance rose 25%. The portion of income they spend on mortgage interest increased 47%, from 4.3% to 6.3%” over the past two decades (ibid).
The FHA-Insured HECM
With 10,000 baby boomers a day turning 62, and the cost of managed care skyrocketing, the trend toward multigenerational living arrangements is not likely to change in the foreseeable future. Costs are going up, wages are not, and as in other times of uncertainty, families rally together to meet needs.
Many issues surrounding aging do not go away over time. However, for the senior homeowner aged 62 or older, the concern surrounding meeting a monthly mortgage payment is one issue that can be addressed through the FHA-insured HECM. And, if there is sufficient equity in the home, the homeowner can improve cash flow by establishing a non-cancellable – and non-taxable – line of credit.
Incidentally, rates have never been lower. So if you, or someone you know, would like to look into the potential benefits of a reverse mortgage, give me a call. I always love hearing from you.
Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem
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