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I'm not sure that underwater mortgagesare peoples' faults--they can occur with anyone unfortunate enough to live in an area where prices are rapidly falling, places where jobs are drastically failing. Places like LA and upscale areas of CA, and places in pricey New England, have held their real estate values for the most part despite moderate dips. Many people live within their means and have gone underwater on their homes.
Not sure if you missed my point. I was not saying that underwater mortgages are necessarily people's fault in general, but rather that if people are, say, 60 or older, then underwater mortgages are likely to be their fault because at that stage in life, if one has been doing the right things, it's time to have a paid-off house or very close to it.
I agree that different real estate markets are, well, different. In Los Angeles, which itself has different real estate markets, values fell by almost 50% from their peak in early 2007 to whenever the bottom was (2009?). I would not call that a "moderate dip". Nor have these values recovered very much from their bottom.
Interesting point. Maybe the boomers were the wealthiest middle class ever, up until about 2007, that is. And of course many of them still are. But the ones who lost their jobs or small businesses in 2007, 2008, and 2009 may have incurred these losses just a few years short of their planned retirement, thus putting a hell of a dent in it at the same time home equity values were tanking along with 401K and mutual fund values.
One of the bullet points in the article was underwater mortgages and it made me wonder about the very question you pose above. Those boomers who always lived within their means, who didn't continually trade up to more and more lavish McMansions, and who didn't use their homes as ATM machines (through refinancing) for lavish lifestyles now have a paid for house to live in during retirement. Just how small a percentage of boomers would that be? (I don't know the answer).
I am just barely too old to be a boomer (born in 1944) and I am so glad I semi-retired in 2005 and finished paying off my house a couple of years later. I am sitting pretty but I don't feel smug about it because I realize if I were five or ten years younger I could have been among those who lost their jobs.
What are folks in their early to mid 50's to do when they get a job transfer or their current area is in economic decline and they need to relocate because of job. What to do if you get transferred from a low cost of living area to a more expensive one? Being underwater because of taking out home equity loans very often was needing to finance the kids college education. Boomers losing their jobs are often needing to eat up their home equity to survive and finding themselves now underwater if their homes continue to decline in value. Can't blame banks for being reluctant to lend much in the way of equity.
I don't think anyone should pay for college (their own or kids') with home equity.
A friend did that, for her classes and husband's. They are now totally underwater in a house they hate, and she said, "Well, where were we going to get the money for school and the new car?"
Where would you get it without the equity?
I agree that the latter is only one way that people end up underwater, but I have seen a lot of it during the go-go years.
But you raise a good point. Example: my BIL is an accountant and makes good/excellent money self employed. He lives in the same modest ranch he bought in his 20s, for $26K, of course paid off decades ago. He has always worked hard, since age 16. His son is a high roller in finance, the son's wife doesn't work, the son has a half-mil house in an upscale area, way larger than they could ever need. If the son ever loses his job, they are up ****'s creek. Why couldn't this young family be happy with a 1500 sq ft home around $200K? Why the need to take the risk? The son looks like he is miles beyond his dad, but in my book the dad is smart, real smart.
I see this all the time. I have no idea why young married people think they should have more than what their parents saved all their lives to have. It makes no sense. I think part of learning responsibility is in the struggle and time spent saving.
Not sure if you missed my point. I was not saying that underwater mortgages are necessarily people's fault in general, but rather that if people are, say, 60 or older, then underwater mortgages are likely to be their fault because at that stage in life, if one has been doing the right things, it's time to have a paid-off house or very close to it.
Not everyone buys a home in their 20s or 30s. I did not buy my first home (while married) till I was 45. I was the one doing the "right things." Through unusual diligence I paid off my mortgage 12 years later (no help from spouse). But not everyone can do that. Divorce, loss of job, and other disasters are more common than one might think, and this can create a wide divergence from what used to be the "norm."
Last edited by RiverBird; 02-20-2011 at 04:16 PM..
I don't think anyone should pay for college (their own or kids') with home equity.
A friend did that, for her classes and husband's. They are now totally underwater in a house they hate, and she said, "Well, where were we going to get the money for school and the new car?"
Where would you get it without the equity?
I agree that the latter is only one way that people end up underwater, but I have seen a lot of it during the go-go years.
While I agree with you in some respects, it is important to remember that paying for a college education (even just community college) in this country is insane. No one has the cash on hand to cover college. I have a doctor friend who received her entire undergrad, grad, and medical training in the Czech Republic at no cost to her. Here we have sold our kids' futures down the river with the kind of student loan payback they are burdened with for life. Unreal.
While I agree with you in some respects, it is important to remember that paying for a college education (even just community college) in this country is insane.No one has the cash on hand to cover college. I have a doctor friend who received her entire undergrad, grad, and medical training in the Czech Republic at no cost to her. Here we have sold our kids' futures down the river with the kind of student loan payback they are burdened with for life. Unreal.
We have discussed this quite a bit, I will graduate with my Masters in a couple years with no school related (Or any) debt.
-Military
Other students I know who have not served in the military will graduate with no, or in many cases less than $20K in debt.
There are many grants out there. Most of the debt I mention is living expenses, and they arn't living on ramen. (And all but one drives a nicer car than I do.)
The extream examples are absurd, and I for one am not willing to pay the extream amounts of taxes that European countries pay for their 'social programs'
Not everyone buys a home in their 20s or 30s. I did not buy my first home (while married) till I was 45. I was the one doing the "right things." Through unusual diligence I paid off my mortgage 12 years later (no help from spouse). But not everyone can do that. Divorce, loss of job, and other disasters are more common than one might think, and this can create a wide divergence from what used to be the "norm."
Thank you Newenglandgirl.
I've been watching this thread with interest because so much of it sounds like me.
I am a three years away from full retirement age and my wife is four and a half years. Thank goodness we have reasonably good health and we both work to keep it that way. Eat right and exercise; we just got back from a 2 mile nightly walk a few short minutes ago.
I work, have a decent job and earn a decent income so on that front all is well but in this economy things can change fast.
I planned for retirement but things kept getting in the way and while we do have money saved in retirement savings it is nowhere near what I should have saved given my income history but things happen. Business with a bad partner can do it as can sickness, injury or a wrong decision along the way. Whatever not everything always goes right.
If you saved a lot for a comfortable retirement then I am truly happy for you but don't be to smug.
As an example look at the former employees of Enron who did everything right, who had half a million or a million in company stock when turning 60 years old but who today find themselves surviving best they can on social security alone.
Bad things happen to good people which is why we have social security least we don't look like Mexico.
For the rest of us who couldn't save what we should have the answer is simple and not that hard. Determine what is really important to you and cut living expenses to make them all fit. For some of us it might mean working an extra year or two but when you look at it working an extra year is the cheapest annuity you can purchase. Two extra years is even a better deal which I might do if I can.
Let me know if you disagree but in my mind there's a big danger zone just before retirement. What happens if you just turn 60 and the company closes down? Yeah, for most that could turn out to be pretty ugly and hopefully you planned for this before it happened.
I am holding my breath with each passing year. I'm over 62 so I could collect SS now but it would be 80% of what I should receive at full retirement. For me that works out to be the difference between $2,150 and $1,720 which is a lot. In my neck of the woods $430 will pay all my utility bills (enough to keep the house very comfortable) including internet, cable and cell phone. That's a lot!
My wife is entitled to half of what I receive so as long as I stay employed she can wait on hers. Waiting three more years makes the difference between $860 now or $1,075 later. With SS alone three more years makes the difference between $2,580 now or $3,225 three years from now and we can all agree $645 more means all utilities AND a trip to Vegas, New Orleans or a cruise every year. $2,580 would easily pay for four trips to see the grandchildren every year!
But a life of barely making it and a good life all hangs on me working for three more years. We could make it if we had to on $2,580 per month but what would really, seriously strain our budget would be medical insurance up to when we qualified for medicare. Having to purchase medical insurance at $1,200/month for 3 years would really kick into our $2,580 budget to the point where we would have to dig into our retirement savings.
I don't want to get any older any quicker than I am but turning 66 will be something of a relief.
For some of us look at having to work longer as making up for past sins and mistakes. If your SS at 66 is estimated to be $2,150 it will increase by $172/month by working one extra year and $412/mo for just two extra years. Look at it this way, how much money would you have to save to generate $412/month in income where the strength of that income was as strong as the US Government? Cough, cough I know but it is better than nothing.
So right now retirement isn't looking so hot but in three years it's looking much better and in five, frankly speaking, it is looking great if I can do it.
Another thing you can do in preparation for retirement is move down in your house. I don't think two people need 4,000 sq. ft. of space and I think if designed right two people can live very comfortably in as little as 1,000 sq. ft.. Room cost money to maintain, heat, cool and property taxes so what would you rather have, room or money? I'll take the money.
So thank you are for allowing me to babble (it helps me to think things out) and wish me luck in at least three more years of work.
As an example look at the former employees of Enron who did everything right, who had half a million or a million in company stock when turning 60 years old but who today find themselves surviving best they can on social security alone.
I quoted only a small portion of what you wrote because that's the portion I wanted to comment on. First, I think what you wrote is very sensible and I hope everything works out as you have planned. As far as the Enron people, I'm not sure they "did everything right". Not that I'm blaming them for failure to foresee their company's demise - and I certainly have enormous sympathy for their plight - but their mistake was putting almost all their eggs in the same basket. Not a good thing to do. If that one basket gets crushed, you have no more eggs. Some of the victims of Bernie Madoff made that same mistake; while they are not at "fault" for his criminal scam, what they invested with him should have been one of several potential income streams and/or assets for retirement. But no, they got "greedy" for that too-good-to-be-true rate of return, placed everything with him, and sadly, it was too good to be true.
Basically if I were one of the Enron that put all my bets on enron and actually worked there I would realise that greed is always part of the con. If you thnik your special and meant ot be part of the elite its easier to con you.Yep Maddofff actaully pursued what was too good to be true because they thought that they were special or so he made them believe.
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All your eggs in the same basket
