Need a nest egg to pay for your nest? Many retirees do
Health care costs dominate the debate about older adults’ spending needs and retirement preparedness. Many studies and media reports emphasize that ballooning out-of-pocket medical costs are undermining retirement security and highlight the disastrous financial consequences of becoming frail and entering a nursing home.
Yet, older adults spend much more on housing than health care or anything else. Policies to help low-income retirees cover their housing costs could substantially boost financial security at older ages.
As our new report shows, households headed by adults age 65 or older devoted a quarter of their 2013 income to housing, which includes spending on mortgage interest, rent, property taxes, maintenance, repairs, homeowners’ and renters’ insurance, and utilities. The next largest item in their budget was transportation, followed by food and health care.
Housing doesn’t eat up much more of household budgets for older adults than for adults younger than 65, who allocated 21 percent of their 2013 income to housing. What’s surprising, though, is that seniors spend so much on housing even when they aren’t saddled with mortgages. Older households are more than three times as likely as younger households to own their homes free and clear (58 versus 17 percent). Yet, the lack of a mortgage doesn’t reduce their housing costs much because they still have to pay property taxes, maintenance, repairs, insurance, and utilities. In fact, those costs combined make up more than half of what older households with mortgages spend on housing.
Older homeowners without mortgages spent 18 percent of their 2013 income on housing, including 8 percent on utilities, 5 percent on property taxes, and 5 percent on maintenance. Older renters spent much more of their income—43 percent—on housing because their incomes, on average, were half as much as homeowners without mortgages. This share is well above the 30 percent cutoff commonly used to identify burdensome housing costs.
Low-income seniors spend an even larger share of their income on housing. Nearly 7 million adults age 65 or older receive incomes below 125 percent of the federal poverty level, a reliable indicator of inadequate income. They spent a staggering 74 percent of their income on housing in 2013. Those with more income but less than 200 percent of the federal poverty level devoted 41 percent of their income to housing.
The onset of health problems at older ages that limit mobility can make housing even less affordable. To remain in their home, seniors may need to undertake expensive home modifications, such as widening doorways or adding ramps to accommodate a wheelchair. Medicaid-financed home- and community-based services are available, but only to those with income below a certain threshold. The threshold varies by state, but it generally falls below the federal poverty level. Disabled seniors with incomes above this threshold are ineligible for help, but many have limited financial resources and high rental, property tax, and maintenance costs, making it impossible for them to remain at home as they age.
Several policy options could help low-income seniors cover their housing costs:
- expand federal rental assistance, which now has enough funding to help only one in four low-income renter households;
- devote more federal funds for housing with supportive services;
- create tax breaks for home modifications, which could allow more seniors to stay in their homes as they age;
- expand the federal Low Income Home Energy Assistance Program (LIHEAP), which serves low-income households, to help more older adults with their utility bills; and
- provide property tax relief to older low-income homeowners.
Such measures could substantially improve the lives of low-income seniors, many of whom are struggling to make ends meet.
This blog is part of the Housing Assistance Matters Initiative which educates Americans about the vital role of housing assistance. The initiative is a project of the Urban Institute, made possible with support from Housing Authority Insurance, Inc. (HAI, Inc.). The Urban Institute is a non‐profit, nonpartisan research organization and retains independent and exclusive control over substance and quality of any Housing Assistance Matters Initiative products. The views expressed in this product are those of the authors and should not be attributed to the Urban Institute or HAI, Inc.
Carolyn Allen, left, is shown with roommate Marcia Rosenfeld. The two women are roommates thanks to a home-sharing program run by the New York Foundation for Senior Citizens, a nonprofit agency. Photo by Kathy Willens/AP