www.federalreserve.gov/pubs/bulletin/2006/financesurvey.pdfJaga, another interpretation of the study you noted, from the NY Times:
www.nytimes.com/2006/02/24/business/24wealth.html Use the URL to read teh entire article.
New data released yesterday from the Federal Reserve shows that for the elderly, like Americans in general, housing wealth has soared even as other forms of savings have declined.
The Fed's latest survey of consumer finance showed that overall wealth increased very little for most American families from 2001 to 2004. For the typical American household, net worth — the sum of all assets less debts — barely increased, to $93,100 from $91,700. Their savings dropped by 23 percent while the value of their homes rose 22 percent.
For retirees, this shifting financial status is likely to force many of them into a decision no other generation has faced: to use their home as the centerpiece of their retirement plan.
"The only thing they are not draining yet is their houses," Mr. Edmunds said, "and that's what they're going to have to turn to."
The Fed's 2004 survey, released yesterday, painted a precarious tableau of retirement planning.
Just under half of all families held retirement accounts in 2004, down from 52.2 percent in 2001, the date of the previous survey..
The typical family's savings — either in retirement accounts or elsewhere — fell to $23,000, almost $7,000 less than three years earlier. Meanwhile, the median indebtedness of the three out of four families who had some form of debt rose by a third, to $55,300.
The erosion of savings affected the wealthy and the poor alike. The savings of people at the top 10 percent of the income scale declined by 6 percent, to $365,100; their income, on average, fell by about the same proportion. (Meanwhile, the typical American's income rose marginally.)
The financial picture is particularly unsettling for those households headed by a retired person. The typical savings of such a family fell to $26,500 in 2004, from $34,400 in 2001.
No one has enough to support themselves in retirement for 20 years."
According to calculations by Ms. Munnell, even the group aged between 55 and 64 — the only age category to increase savings in the last three years — has only amassed a small fraction of what people need to maintain their lifestyle in retirement.
Home prices provided pretty much the only upbeat news. Just over 69 percent of Americans owned their own homes in 2004, according to the Fed data. The median value of their homes jumped to $160,000 in 2004 from $131,000 three years before, a rise of 22 percent.
Among households headed by retirees, nearly 76 percent owned their homes in 2004. The median value of their homes also jumped 22 percent, to $130,000, compared with $106,500 in 2001.
"A lot of people went into retirement with pension funds and stock market investments that they thought would serve them toward the end," said Bronwyn Belling, reverse mortgage specialist at the AARP Foundation in Washington. "They've been in for some pretty rude awakenings."
Already, evidence is mounting that older people are tapping the equity in their homes more aggressively. In the late 1980's, the Federal Housing Authority began a pilot program of reverse mortgages — loans, made mostly to seniors against the value of their homes, that do not require monthly payments.
Elderly borrowers whose incomes will not qualify them for a more traditional home equity loan can still opt for a reverse mortgage. The loans are usually worth some fraction of a home's value, and need to be repaid, with interest, only when the house is sold or the borrower dies.
Yet even this group does not have enough in financial assets to pay for a secure retirement. According to Ms. Munnell of Boston College, families should save at least five times their annual income to finance an adequate retirement.
According to the Fed's survey, however, the 95 percent of Americans 55 to 64 who had any savings at all typically had amassed $78,000, which is only about 1.5 times their median annual earnings.
That suggests that more of them will need to tap into their home equity. "We're looking at the Baby Boomers coming in shortly and a lot of them have been earn-and-spend type personalities," said W. L. Pulsipher, president of American Reverse Mortgage in Ocala, Fla. "So chances are they are going to be more apt to need to use their home than the current people that are doing it."
