More Seniors Are Unprepared for Rising Cost of Housing

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Housing is usually the biggest monthly expense for most people, and the one most likely to wind up a budget buster. For many seniors, that situation is likely to get worse -- probably much worse.

A new study by AARP and Harvard's Joint Center for Housing Studies finds that one in three Americans older than 50 faced a severe or moderate housing burden in 2012. That's up from one in four in 2000. The report warns that the nation is "unprepared to meet the escalating need for affordability, accessibility, social connectivity and supportive services."

The good news? "It's not very often that we have a window into a future crisis so early on," according to Vivian Vasallo, vice president of housing for the AARP Foundation. "We have an opportunity to be proactive in how we manage this."

Renters and Women at Risk

About 10,000 boomers are retiring every day, and the number of Americans older than 65 is projected to soar to 73 million by 2030 -- an increase of 33 million in just two decades. People are living longer, increasing the cost of housing even more -- especially for low-income people who do not own their own homes. The Harvard/AARP report says this trend will lead to "significant shifts in housing demand." Vasallo notes that as people age, they become more vulnerable to reductions in income, with housing costs especially challenging for minority groups. She says "many are already facing a significant cost burden, and it's only going to grow." Women are especially at risk, likely to end up living alone in their 70s or 80s.

Studies show that almost 90 percent of older adults want to age in place -- that is, stay in the home and the community they now live in. But by age 85, more than two-thirds of individuals have some type of disability that makes aging in place less practical or more costly.

The report says older adults and their families need to plan for the vulnerabilities of aging and make the tough choices "about where to live, the type of housing to occupy or the type of home modifications to make -- in advance of disabilities or chronic conditions." Solutions include grab bars, which help prevent falls, and lever-style handles for doors and faucets. Other options -- such as living on one floor or living in a community that offers public transportation and adequate health care nearby -- are potentially more difficult and more expensive. And many people simply lack the resources to make these changes.

Time for Society, People to Act

Vasallo says this is a wakeup call for the country and for individuals. "If we ignore this call to action, we're looking at more older people living a more vulnerable state," she said, referring to money for housing taken from other necessities, including food and health care.

Renters have it tougher: Nearly one-third of renters already pay more than half of their income on housing. Homeowners -– even those who still carry mortgages -– typically are wealthier in terms of both home equity and non-housing assets and pay less for housing. The report says the typical homeowner aged 65 and over has enough wealth to cover nursing home costs for 42 months. In contrast, the median older renter cannot afford even one month in a nursing home.

The report suggests actions to ease the problems, including rental assistance, expanded use of technology and services to help older adults modify their homes, more services delivered at home and communities that promote independence but prevent isolation.

10 Ways to Reduce the Cost of Retirement
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More Seniors Are Unprepared for Rising Cost of Housing
Eliminating your mortgage is one of the best ways to make retirement more affordable because it removes a sizable monthly bill. While you'll still have to pay taxes and maintenance costs for your home, those expenses are likely to be a fraction of your mortgage payments.
Once your children are independent, you will likely no longer need a several-bedroom house in a good school district with a large yard that can be expensive to maintain. Consider downsizing to a smaller home in a less-expensive neighborhood, and add the proceeds of the sale to your nest egg.
Where you live plays a big role in how much you pay for food, taxes and a variety of other services. Moving to an area where the cost of living is significantly less could allow you to spend down your retirement savings more slowly.
If you and your spouse commuted to separate places each day, it is likely that you each needed a car. In retirement, you might be able to get by with one car, thus eliminating the insurance, gas and maintenance costs of the second vehicle. In walkable communities with good public transportation, you may even be able to get by without a car in retirement.
In retirement, income tax will be due on withdrawals from traditional 401(k) and individual retirement accounts, but you can space out your withdrawals to avoid a hefty tax bill in a single year. Prepaying income tax on some of your retirement savings using a Roth IRA or Roth 401(k) allows you to avoid a big tax bill in retirement.
Investing in high-cost funds reduces your return. Minimizing investment costs is especially important for retirees who are living off income from their portfolio. In this case, selecting the lowest-cost funds that meet your investment needs translates to more money in your pocket.
There are significant penalties if you withdraw money from your retirement account too soon or too late. There is also a reduction in benefits if you sign up for Social Security early, and a late enrollment penalty if you delay signing up for Medicare Parts B and D. Pay attention to important retirement deadlines to avoid paying more than you need to.
Health care is likely to be one of the biggest and least predictable costs you will face in retirement. But there are some things you can do to control your health costs. Consider purchasing a supplemental policy to Medicare to fill in some of the gaps and cost-sharing requirements traditional Medicare doesn't cover. Also, shop for a new Medicare Part D plan every year to make sure you are getting coverage for your medications at the best price.
Retirees have the luxury of being able to travel whenever they want. Traveling is often less expensive if you avoid major holidays and school breaks, and most tourist destinations will also be less crowded.
One of the major perks of growing older is getting discounts at movies, museums and restaurants. While some senior discounts are well-publicized and open to everyone old enough to have an AARP card, others are available only to those who ask. A little research can add up to big savings if you’re willing to admit your age.
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