The price for not planning your retirement

The question of whether the senior living industry is prepared to meet the demand for middle-market senior housing has emerged as one of the top issues facing the industry in 2019.
With the aging of the baby boomers, the contingent of middle-income seniors is set to hit 14.4 million people by 2029, and 56% of them will not be able to afford private-pay senior housing at today’s market rates, according to research findings released in April by the National Investment Center for Seniors Housing & Care (NIC) and academic institutions.
The generation has not fully recovered the wealth it lost during the Great Recession due to a combination of home equity values never recovering to their pre-2007 levels in many parts of the country, carrying too much debt heading into retirement and exiting their prime earning years.
Perhaps most troubling: While home equity is the main vehicle to generate the wealth necessary for older adults to transition into senior housing, the generation’s biggest liability remains mortgage debt, and even well-to-do boomers are already having trouble selling their homes.
Determining lost wealth
Baby boomers, on average, lost 26% of their wealth between 2007 and 2010, according to a July 2018 Pew Research Center report on average U.S. household wealth. Boomers’ home equity values plummeted 28% during that period.
While the generation’s average wealth is higher than its 2010 nadir, it remains far below what it was in 2007 when the recession’s impact started being felt, Pew Research Center Senior Researcher and author of the report Richard Fry told Senior Housing News.
Fry used data collected by the Federal Reserve for its Survey of Consumer Finances, a study conducted every three years that sheds light on household wealth across the country. The survey exhaustively captures most types of household debt and assets, although it does not estimate wealth from Social Security streams or the values of employee-sponsored defined benefit pensions.
“This dataset is the gold standard for determining American wealth,” Fry said.
Exacerbating the impact of the Great Recession, baby boomers are one of the most debt-ridden generations in the country’s history. And that debt load is affecting boomers’ ability to properly save for retirement.
A March report from online lending marketplace Lendingtree revealed baby boomers in the country’s 100 largest cities carried an average of $25,187 in non-mortgage debt, mainly in automobile loans and credit card balances.
But the generation’s biggest liability remains mortgage debt. The combination of higher debt and lower home equity values will result in boomers finding themselves limited in their senior housing options when it is time to retire, Fry said.
“Mortgage debt outstrips all other [liabilities],” he said.
The NIC middle-market research did include annuitized housing equity in calculating its boomer wealth numbers. But unlocking that equity could be challenging in some cases. In the years leading up to the Great Recession, easy access to credit enabled many boomers to build large homes, but now these are proving hard to sell, The Wall Street Journal reported in March.
“These days, buyers of all ages eschew the large, ornate houses built in those years in favor of smaller, more-modern looking alternatives, and prefer walkable areas to living miles from retail,” the WSJ noted. “The problem is especially acute in areas with large clusters of retirees.”
Compounding matters, boomer households are earning less than they were a decade prior. The average earnings of boomer households peaked at $85,000 a year in 2007. As of 2016, the last year the Survey of Consumer Finances was released, that average dropped to $72,000 a year.
“It’s hard to rebuild your nest egg as your earnings potential is falling,” Fry said.
Photo by Senior Housing News/Chuck SudoA row of single-family homes in Chicago. Housing values here have recovered slower than in any major market in the U.S.
With more money servicing debt, many boomers are finding themselves flat-footed preparing for retirement. A November 2018 report from the Stanford Center on Longevity revealed that one-third of boomers had nothing saved for retirement as of 2014, when they were 58 years old, on average. Of those boomers who had saved for retirement, the average nest egg value was $200,000.
Those numbers track closely with a March 2019 study from Bankers Life Center for a Secure Retirement, which showed 79% of middle-income boomers had no savings for retirement care.
Necessity brings invention
This confluence of factors has experts reconsidering whether to build more market rate housing, and creating new brands to serve middle-market and lower income senior boomers.
Point Development Company Chief Development Officer Ryan Haller minced no words during Senior Housing News’ BUILD Conference in Chicago on May 8. Point, part of the Avamere Family of Companies, launched Ovation, a “micro-CCRC” concept, specifically to address the lower cumulative wealth of baby boomers. Haller estimates up to 10% of boomers will not be able to afford the housing of their choosing.
“One reason we created the Ovation brand is the baby boomer generation — despite what you may have read — is one of the brokest generations,” he said.
Active adult behemoth Del Webb is another company that is changing up its model to serve an evolving demographic, starting to build 55-and-older communities closer to city centers, in part recognizing that boomers are continuing to work full- or part-time later in life.
The dilemma the industry is searching for ways to prepare for the kind of housing a boomer might want, at reasonable price points that they can afford.
“They won’t, for the most part, have any pensions. They won’t have 401K [plans],” Finis said. “Their home values may be starting to return [to pre-2007 levels], but that was because the dip was pretty big.”
Finis sees a short window of opportunity to plan for the mass arrival of boomers into the higher acuity levels of care — the oldest boomers will be in their early 80s a decade from now, and likely in need of assisted living.
But advancements in home health care, as well as a shift in care to wellness and prevention, will allow boomers to stay in their homes longer and, if home values continue to trend upward, recapture more lost wealth.
It’s hard to rebuild your nest egg as your earnings potential is falling.