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The Implications of Carrying Higher Housing Debt into Retirement

The financial profile of the typical American household entering its retirement years today is quite different than in generations past. In earlier generations, retiring employees were often eligible for employer-sponsored financial benefits, such as the guaranteed lifetime income provided by traditional pensions and retiree healthcare coverage. Households also typically drew two Social Security benefits in retirement—often a worker benefit and a spousal benefit based on the breadwinner’s work record. Most Americans sought to have their mortgage paid off by the time they retired, and households did not have easy access to refinancing options, home equity loans, lines of credit, or reverse mortgages.

Today, Americans bear a much greater financial burden. While some retiring workers still benefit from the income provided by a defined benefit pension plan, most employees are largely responsible for saving for their own retirement through defined contribution plans (e.g., 401(k)s) and other retirement savings vehicles. Retiree healthcare benefits are increasingly rare in the private sector, requiring households to fund their own healthcare costs in retirement beyond what is covered by Medicare. As households increasingly rely on dual incomes, Social Security benefits stand to replace less of the households’ earnings in retirement. Due to a greater access to credit, individuals are borrowing more over a lifetime, rather than just in early adulthood, in the form of student loans, credit cards, mortgages, home equity loans, home equity lines of credit, and reverse mortgages.

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