Barbara Quirk: Economic turmoil serious for seniors

Barbara Quirk  —  10/20/2008 9:07 am

Who could read about the 90-year-old woman who shot herself before deputies could take her away from her foreclosed home and not be angry about the whole mess?

The story, in case you missed it, took place recently in Akron, Ohio. Ninety-year-old Addie Polk owed more on her mortgage than her home was worth. As it turns out, the house was worth less than its mortgage the day she took out the loan in 1997. Rather than face foreclosure, she placed her life insurance policy next to her pocketbook and keys, and shot herself in the chest. Fortunately, she did not die.

"You have to shoot yourself to get help," lamented a neighbor. Other longtime neighbors were shocked to learn that the widow, who kept such a neat house and yard, was about to lose her home.

Congressman Dennis Kucinich, D-Ohio, called Polk the face of a national tragedy, the housing crisis that has affected millions of Americans. Kucinich took up her case and Fannie Mae dropped the foreclosure, forgave her mortgage and said she could remain in her home.

Polk is certainly not alone. It is uncertain just how many older Americans are hurting financially, or how deeply they are hurting, but a report by the Urban Institute in early October indicates that the slumping economy has serious repercussions for seniors. Americans who are approaching retirement or already retired have little time to recoup the values of their homes, 401(k) plans, and individual retirement accounts -- all part of their retirement nest eggs.

According to the report, "How Is the Economic Turmoil Affecting Older Americans?" more and more older adults are working to bolster their retirement incomes, but the rising unemployment rate (now 6.1 percent) limits their prospects."

For the 94 million Americans age 50 and older, retirement accounts lost about 18 percent of their value over the last 12 months, and between January 2007 and May 2008, housing prices fell from 4 to 20 percent depending on where seniors live. Of course these people were depending on their investments in their homes to see them through retirement.

The stock market lost 27 percent of its value in the last year, a $7 trillion drop. That does not include the past two weeks. These losses have significantly reduced the retirement savings of many Americans, including older adults.

The facts are grim. Forty-nine percent of households age 50 and older own retirement accounts. Seventy-nine percent of these accounts include stock holdings. Again, according to the Urban Institute report, the typical retirement account of households age 50 and older invests 50 percent of its assets in stocks. However, households age 70 and older hold much less in stocks, reducing their exposure to market fluctuations.

In a separate study, the Urban Institute asks: "How much could reverse mortgages contribute to retirement incomes?" The study concludes that retirees who want to stay in their homes can tap into home equity through a reverse annuity mortgage (RAM), which will pay them a tax-free monthly amount. This method can provide a significant boost in retirement income, particularly for low-income homeowners with significant equity. However, recent declines in home prices raise uncertainties about the potential for using a RAM as a retirement income booster.

What should homeowners watch out for when relying on retirement income through RAMs? This study suggests that for many older adults, home equity represents their single largest financial asset. Traditionally, older adults have not tapped into their home equity unless some adverse event, such as the death of a spouse, forces a sale. With the loss of retirement savings, more retirees may be increasingly tempted to turn to their home to help make ends meet.

The fact is that older adults in the lowest-income groups, particularly single seniors and the oldest age group, are less likely to be homeowners.

If you are considering a RAM, it is essential that you consult with a legitimate specialist such as the Modified Reverse Mortgage Program of the city of Madison, 266-4671, or the Coalition of Wisconsin Aging Groups' Elder Law Center, 224-0606.

Barbara Quirk is a Madison geriatric nurse practitioner.

Barbara Quirk  —  10/20/2008 9:07 am