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The added housing debt could create problems down the road for retirees, including the forced sale of their home when the first spouse dies, according to the white paper, “Planning for Retirement: The Implications of Carrying Higher Housing Debt into Retirement,” which is based on research conducted by the
Americans nearing, or in, retirement experienced an extraordinary increase in housing debt between 1989 and 2013, far outpacing the increase in home values, according to the
Avoiding retirement debt
“It is a different world today for retirees,” said
The easiest way for couples and individuals to guard against the risks of debt in retirement is through life insurance, a tax efficient way to provide extra income in retirement, pay off debt or provide an offset to the income loss likely to occur when one partner dies, according to Perlin.
Perlin said the higher level of debt is due in part to low interest rates, easy access to home equity credit lines and mortgage refinancing activity. “It is easy to accumulate debt and Americans are pretty comfortable with borrowing money,” she said.
Perlin said things have changed on the income side of the equation as well, with many households increasingly relying on dual incomes and workers taking on the burden of funding their own pensions and retiree healthcare coverage. With dual incomes, many couples enter retirement with both able to collect
“But the increased debt means the monthly payments will eat away at their
Unlike with previous generations, life insurance is now needed in retirement for couples and individuals, Perlin said. Preceding generations had little need to carry life insurance in retirement, because they brought little debt into retirement, and the drop in household
“These factors create a much greater need for older Americans to consider life insurance coverage to help ensure their family’s financial security,” Perlin said.
Life insurance is a convenient way to build a cash reserve during working years, and, many policies allow cash withdrawals to supplement income and meet debt repayments, according to Perlin.1 In addition, death benefit proceeds can be used to pay off a mortgage or home equity loan, easing the burden on the surviving spouse and giving children some peace of mind about their parents’ financial situation.
For more information about Planning for Retirement: The Implications of Carrying Higher Housing Debt into Retirement, please visit www.prudential.com/housingdebt
1Outstanding policy loans and withdrawals will reduce the policy cash values and the death benefit and may have tax consequences.
Life Insurance is issued by