More Older Americans Are Being Buried By Housing Debt

[Purveyor]

WASHINGTON (AP) — Al and Saundra Karp have found an unconventional way to raise money and help save their Miami-area home from foreclosure: They're lining up gigs for their family jazz band.

They enjoy performing. But it isn't exactly how Al, an 86-year-old Korean War vet, or Saundra, 76, had expected to spend their retirement.

Of all the financial threats facing Americans of retirement age — outliving savings, falling for scams, paying for long-term care — housing isn't supposed to be one. But after a home-price collapse, the worst recession since the 1930s and some calamitous decisions to turn homes into cash machines, millions of them are straining to make house payments.

The consequences can be severe. Retirees who use retirement money to pay housing costs can face disaster if their health deteriorates or their savings run short. They're more likely to need help from the government, charities or their children. Or they must keep working deep into retirement.

"It's a big problem coming off the housing bubble," says Cary Sternberg, who advises seniors on housing issues in The Villages, a Florida retirement community. "A growing number of seniors are struggling with what to do about their home and their mortgage and their retirement."

more...

http://bigstory.ap.org/article/39c19ef44eaa46888423ae1072226596/more-older-americans-are-being-buried-housing-debt

[cascadiance]

1. It's time that Congress find a way to help older people avoid 10% early distribution penalties...

... on early distributions of 401ks and IRA retirement plans.

Most people wouldn't have invested in these plans had they known that our economy would go the way it has and that people have been having homes foreclosed and be unemployed or having their job salaries go down instead of up.

It's another tax that many have to pay these days when they are pushed to the brink that the wealthy don't have to pay. Forgiving this penalty, or finding some ways to fix the hardship clauses for taxes would help those most affected by the economic downturn.

I had to pay the 10% penalty on early withdrawal last year, because even though I was unemployed for four months and paid for health insurance premiums during that time for which there is a hardship clause to use that money to reduce/eliminate 10% penalty, the stupid requirement is that you had to be unemployed for 3 months consecutively to qualify. I was unemployed twice for two months each, and therefore didn't qualify, even though I might have had more "hardship" than someone being unemployed once for just three months consecutively.

We should also fix problems with early distributions from 401ks when you are 55 or over don't only qualify if your retirement plan is administered by the company that you worked for when you were 55 or over. Many of us have older 401ks that we can't roll over to qualify for this when we have to do so much contract work that is now what the market demands us do now.

This crap all works together to break those being buried in debt to have to be buried more.

[dem in texas]

2. Cashed out Equity

During the go-go days of the housing bubble, many mid fifty couples cashed out the equity in their homes. That is why they are strapped for cash now. I could never understand why the financial guru's never addressed this and advised people to refinance to get at the equity.

We were bombarded with phone calls and junk mail to refi our house which we bought in 1981 for $82,500 would now top out over $200,00 if sold today.

But we just kept making our monthly payments and bingo, our house was paid for. Now we are in our mid 70's and haven't had a house payment in years. That is over $1,000 a month that is not going out the door for housing cost. We have retirement plus social security, so we are living comfortably in our old age.

I tell my kids who are in their 50's now to not refi their house unless they are lowering the interest rate and if they have a little extra money add it to their monthly mortgage payment so the house is paid off quicker.

We have been through some serious medical treatments and also had to buy a new car. Plus want to help the grandkids pay for their college. Couldn't have done this if our home was not paid for

[nichomachus]

3. Here's why

I could never understand why the financial guru's never addressed this and advised people to refinance to get at the equity.

They were scammed. The banks or mortgage people made their money by originating the loans, not by servicing or holding onto them.

They fast talked a lot of people. The people fell for it. It was a scam, as are so many other things. I was talking to a 25-year-old guy one day just before the crash. He was bragging about how many sub-prime mortgages he was writing. He was putting people who made $50K a year into homes that cost $400,000 -- and were worth about $150K.

It proves that there is indeed a sucker born every minute and it also proves that the average person cannot make better financial decisions than the bad, old government.

[Number9Dream]

4. Add to that astronomical property taxes. n/t