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Impact of Declining Values on Retirement Planning

[Mar 3, 2009.]


It's a scary time for baby boomers that are nearing retirement.

Today, the Dow Jones Industrial Average (DJI) closed at 6,726, a level not seen since 1997. Retirement plans and other investment accounts have seen, in some cases, 25% of their value evaporate in the last 2 months.

Add the current housing crisis to the mix and it begins to look very bleak for those very close to retiring with little time to recover.

According to a CNN.com article:

So much home equity has been lost that 30% of boomers, aged 45 to 54, are underwater in their homes, according to "The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble. " The report, released by D.C.-based think tank the Center for Economic and Policy Research, also found that 18% of boomers aged 55 to 64 would owe money at close if they sold their homes.

Many had hoped to leverage the large amount of home equity that had been created through appreciation in recent years to get them through their retirement.

Some had plans of selling their home, downsizing to a smaller less expensive home, and using the left over proceeds to supplement their social security benefits, pensions, and other investment income.

Others were planning on staying put and utilizing a home equity loan or line of credit to offset the inevitable drop in income when they stop working.

Reverse mortgages were also becoming a popular strategy to keep one's home while still accessing the equity that had been built up.

Unless the housing market does a quick about-face, most will have far fewer assets to rely on in retirement than originally thought. Many will find themselves working until a much older age than they had planned or relying on other family members to meet their expenses.


About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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