Speculation: more Americans choose to pursue unretirement to find meaning

Various data points show more Americans continuing to work even when do not need the money at retirement age:

Unretirement is becoming more common, researchers report. A 2010 analysis by Nicole Maestas, an economist at Harvard Medical School, found that more than a quarter of retirees later resumed working. A more recent survey, from RAND Corporation, the nonprofit research firm, published in 2017, found almost 40 percent of workers over 65 had previously, at some point, retired…

Even more people might resume working if they could find attractive options. “We asked people over 50 who weren’t working, or looking for a job, whether they’d return if the right opportunity came along,” Dr. Mullen said. “About half said yes.”

Why go back to work? We hear endless warnings about Americans having failed to save enough, and the need for income does motivate some returning workers. But Dr. Maestas, using longitudinal data from the national Health and Retirement Study, has found that the decision to resume working doesn’t usually stem from unexpected financial problems or health expenses…

Researchers note that older workers have different needs. “Younger workers need the paycheck,” Dr. Mullen said. “Older jobseekers look for more autonomy, control over the pace of work. They’re less concerned about benefits. They can think about broader things, like whether the work is meaningful and stimulating.”

One of the primary ways that adult Americans find meaning is in their jobs. Not only does a job help pay the bills, a job has become a reflection of who you are. Think of that normal question that leads off many an adult conversation: “What do you do?” With a shift away from manufacturing and manual labor jobs, service and white-collar jobs can encourage the idea that our personality and skills are intimately tied up with our profession.
Put this emphasis on an identity rooted in a job or career together with a declining engagement in civic groups and a mistrust in institutions. Americans are choosing to interact less with a variety of social groups and this means they have fewer opportunities to find an identity based in those organizations. We are told to be our own people.
Imagine a different kind of retirement than the one depicted in this article: older Americans finish a long working career and then find time to get involved with extended family life or various causes, secular and religious, where they can provide both expertise and labor. Where would many congregations or civic groups be without the contributions of those who are retired and now can devote some more time to the public good? What if the child care needs that many younger families face be met with grandparents who could consistently help? What if retired Americans could regularly mentor children and teenagers who would benefit from wise counsel and a listening ear? That is not to say there are not plenty of retirees who do these things; however, this approach involves a broader look at life satisfaction that goes beyond a paying job.

Older Americans with growing amounts of mortgage debt

One impediment to retirement for many Americans will be what they owe on their home:

The proportion of homeowners over 55 with housing debt has climbed, the Boston College group recently reported. Dr. Sanzenbacher provided the numbers: 50 percent still had mortgages, home equity loans or lines of credit in 2013, compared with 38 percent in 1998.

An Urban Institute study published this month, based on data from the national Health and Retirement Study, found a similar pattern among homeowners over 65. The proportion with housing debt rose to 35 percent in 2012 from 23.9 percent in 1998.

Moreover, the median amount they owed nearly doubled, to $82,000 from $44,000…

Her work has shown that older people with mortgage debt tend to stay in the labor force longer, and to delay receiving Social Security benefits.

In other words, the consequences of the burst housing bubble are still working their way out. If older Americans owe more money on their homes, they are likely to work longer and stay in their homes longer, making it more difficult for younger Americans to move into the work force and purchase a starter home. And if both older and younger Americans are still struggling in the housing market, who is actually coming out ahead? The truly wealthy who aren’t as hampered by mortgages.

More older Americans dealing with mortgage debt

Retirement may look quite different for many Americans who have more mortgage debt than in the past:

Nearly a third of homeowners 65 and older had a mortgage in 2011, up from 22% in 2001, according to an analysis from the Consumer Financial Protection Bureau, using the latest available data.

The debt burden also grew — with older homeowners owing a median of $79,000 in 2011, compared with an inflation-adjusted $43,400 a decade earlier.

For decades, Americans strove hard to pay off their mortgages before retirement, an aspiration that when achieved was celebrated with mortgage-burning parties…

A recent study from Harvard University’s Joint Center for Housing Studies showed that of mortgage holders ages 65 to 79, nearly half spent 30% or more of their income on housing costs. Of mortgage holders 80 or older, 61% pay that amount on housing.

This continues a trend noted last year. This is worth watching as a higher percentage of Americans are older and this particularly affects older residents in more expensive markets where housing options are not as cheap. Homeowners could have several options down the road. First, perhaps they shouldn’t buy homes close to retirement age. Unfortunately, this means they might not be as flexible in searching out new jobs. Second, they may have to sell at retirement and bank that money for future concerns. Yet, even if they can make a good return on selling their home, moving can still be a tough transition (even within a metro area as opposed to moving to significantly cheaper markets). Third, they may have to pursue other living arrangements at retirement such as renting rooms or small apartments in their dwelling to try to make some extra money.

What happens if a Catholic archbishop moves to a New Jersey McMansion in retirement?

“A Catholic archibishop moves into a McMansion for his retirement…” might be the start of a joke or it may be this story from New Jersey:

The 4,500-square-foot home sits on 8.2 wooded acres in the hills of Hunterdon County. With five bedrooms, three full bathrooms, a three-car garage and a big outdoor pool, it’s valued at nearly $800,000, records show.

But it’s not quite roomy enough for Newark Archbishop John J. Myers.

Myers, who has used the Franklin Township house as a weekend residence since the archdiocese purchased it in 2002, is building a three-story, 3,000-square-foot addition in anticipation of his retirement in two years, The Star-Ledger found. He will then move in full-time, a spokesman for the archbishop said.

The new wing, now just a wood frame, will include an indoor exercise pool, a hot tub, three fireplaces, a library and an elevator, among other amenities, according to blueprints and permits filed with the Franklin Township building department.

There are quite a few details about the house in this story. It sounds like a fairly lavish McMansion but there are plenty of similar homes in New Jersey, a state closely tied to McMansions due to its many suburbanites as well as the famous Soprano McMansion.

However, there is also a lot of questioning of why an archibishop needs such a lavish house. The issue isn’t just that this is a big or poorly-designed house. Rather, this is a moral issue. Shouldn’t priests live simply and serve God rather than live it up in a McMansion paid for by church members? If purchasing a McMansion is excessive spending for an average American and threatens to throw off their retirements, how much more so is it for an archbishop? This could lead to an interesting conversation of just what kind of housing priests should live in to best pursue their vocation and provide the image the church wants to project.

McMansions can derail your retirement plans

Amidst concerns baby boomers will have difficulty selling their homes, here is a suggestion that buying a McMansion can derail retirement plans:

We occasionally hear about a friend who somehow saved up enough money, or just decided to chuck it, and walks off to retire at age 60, 55 or even 50. It can be done.

Also, some people live in a McMansion, drive a Tesla, and vacation in the south of France. But we know it’s a very expensive lifestyle. And we know we all can’t afford it, as the real estate bust of the 2000s so cruelly reminded us. We need to appreciate that, like buying a McMansion, taking early retirement is a very expensive proposition. Yes, a fortunate few can afford it. But most of us just have to get real.

Two things are interesting here. The first is that purchasing a McMansion seriously hampers retirement plans. Purchasing one uses up a lot of money and saddles the owner with a large mortgage (plus the home might be underwater and it can cost a lot to fill such a large home). A more prudent investor would purchase a more modest home rather than splurging on a McMansion.

The second interesting part of this is the comparison to owning a Tesla or vacationing in France, both relatively rare things. For example, Teslas start around $70,000 and only about 22,500 were sold in 2013. In the 2000s, it was common to see McMansion purchases compared to SUVs, a mass production item that cost much less than a Tesla. The implication then is that McMansions are even rarer today, making it even more of a folly to own one.

More Americans retiring with a mortgage

The number of Americans retiring while still having to pay off a mortgage has increased in recent decades:

In 1989, just 26.4% of all households were retired with a mortgage, according to data from the Federal Reserve’s Survey of Consumer Finances. That jumped to 46.5% by 2007, before receding a bit during the recession.

These stats trouble traditionalists, who view owing money on a house in retirement as heresy. After all, paying off a mortgage brings peace of mind, because you know your living expenses have been cut and that your home equity offers a sturdy safety net.

Yet clinging to a mortgage in retirement has benefits too, especially with the average 30-year fixed-rate mortgage running at just 3.5%. You might be better off keeping the mortgage and investing the money elsewhere, which amounts to borrowing at a tax-deductible 3.5% in order to start a business, invest in stocks, or purchase an income property. Over time, such investments should provide superior returns.

This new calculus assumes that you have the means to pay off your mortgage in the first place. Many folks have been downsized into retirement prematurely and may still hold a mortgage because they can’t do anything about it. But for those with a choice, the basic rule of thumb: If you expect to earn more after tax on your investments than you pay after tax on your mortgage, keep the mortgage. However, if you are a conservative investor and keep your money in bank CDs and Treasury bonds, it is probably better to pay off the housing debt.

I imagine most of these Americans who have retired with a mortgage would say they don’t like having a mortgage at retirement. But, they likely have some say in this: they could wait longer to retire to help pay off their mortgage.

What is behind this? It could be a number of reasons. Perhaps Americans moving around more at later ages, leading to more mortgages near retirement age in the first place. Perhaps this is the result of economic issues – people are not as able to pay off mortgages. Homeownership rates haven’t changed all that much since 1989, roughly 2% point difference in recent years (Table 14 here), so something is happening with the nature of mortgages or the age at which mortgages are started.

Baby Boomers can’t retire because they all bought McMansions?

The economic crisis has changed the retirement plans of many. How might have McMansions played a role?

Financial planners on the South Shore and a new national study all point to the same troubled financial picture for people in their late 40s to their early 60s: Many are carrying so much debt from mortgages and student loans they co-signed for their children that retirement is a distant dream.

“They traded in their houses for a McMansion and bought at the higher part of market. They hocked it over 30 years, and they have little equity, if any,” said John Napolitano, CEO of U.S. Wealth Management in Braintree and 2012 president of the Financial Planning Association of Massachusetts…

The study found that the mortgage burden for baby boomers is 25 percent higher than it was for the same age group in 1990.

“In the refinance boom, mortgage brokers convinced (baby boomers) don’t stress out and sold them on a 30-year mortgages,” said Harris. “It was all about cash flow.

The article suggests Baby Boomers are also helping their struggling children. Yet, I wonder about these figures about mortgages and McMansions. This leads to two questions: (1) How many Baby Boomers really bought homes that might be considered McMansions? (2) And how many of them went into excessive debt to purchase this McMansion? For example, I would guess there are a decent number of people underwater on their regular-sized (less than McMansion size) home, particularly in certain housing markets.

This could be a classic case of McMansions serving as a whipping boy or shorthand explanation for the complicated housing market of recent years. When the term McMansion is used here, a certain image comes to mind: a house that is extremely unnecessary for the homeowners. Without seeing the actual numbers, it is hard to know this is exactly what happened but using McMansion certainly helps drive home a particular idea.