Susan A. Pomfret, RICP®
Most people concentrate on wealth accumulation while still in the workforce. But will that be enough for retirement spending? Here are some things to consider:
• Housing is the greatest expense.
• Clothing and transportation spending decline with age.
• Healthcare spending increases with age.
In the below chart, you’ll find some of the most popular expenses during retirement from the U.S. Bureau of Labor Statistics Consumer Expenditure Survey for 2019.*
In my experience, the most unpredictable expenses are medical and long-term care. Since
housing is the biggest expense, we are going to concentrate on a retiree’s options there.
Remember, the home is also a financial asset!
There are three general retirement community options: a naturally occurring retirement community
(NORC), active adult community, or an assisted living community. Health benefits within healthy
NORCs are higher where physical and social environments facilitate greater activity and promote
feelings of well-being. Compared to the provision of additional medical or social services, healthy
NORCs are a low-cost, community-level approach to facilitating healthy aging.**
Some characteristics of healthy NORCs:
• Dynamic senior community with a large number physically and socially active people (walking,
biking, working, and socializing).
• All basic needs and amenities are within walking distance.
• Inclusion of well-lit sidewalks and walking paths that are accessible all year.
• Presence of active community environments.
• Sufficient public transportation to important facilities or destination points.
• Perceived as safe and crime free.
• Opportunity to participate in formal and informal social and physical activities.
• Local governments progressively demonstrate senior-friendly policy decisions.
• Private sector markets progressively respond to the needs of seniors.
Active adult communities are communities that typically offer maintenance-free independent living
residences to those age 55 and older. There are two types of active adult communities:
• Age-restricted – at least 80% of residences must have at least one individual age 55 and
• Age-targeted – preferred but not limited to people age 55 and older.
Assisted living communities are a type of residential care for older adults who need help with
activities of daily living (ADLs) such as dressing, bathing, and grooming. These individuals can
still continue to live as independently as possible, as they’re offered many engaging amenities and
activities. In 2020, the average national cost in the U.S. was $4,300 per month, according to
Genworworth’s Cost of Care Survey
For retirees who prefer to “right-size” their current home, they can utilize a Home Equity Conversion Mortgage (HECM) for Purchase (H4P) product. For illustrative purposes only, let’s say a 65-year-old borrower is selling her current primary residence and will net $400,000. She will be purchasing a new, one level primary residence closer to the children and grandchildren for $300,000. With a H4P, she will contribute approximately $150,000 for the new home and retain $250,000 to use throughout retirement. She will only be responsible for property taxes, homeowners insurance, and HOA/Condo dues if applicable. This opportunity can free up that cash to be prepared for the unexpected, to help with day-to-day expenses, or just have a rainy- day fund. In a different illustrative scenario, a retiree prefers to stay in his current primary residence but needs additional income to help pay the day-to-day expenses, plus do some minor home modifications to help him age in place. He is 62 years old with a $300,000 home value and decides
to take out a HECM refinance. Because payment options are flexible, he chooses to take $10,000 at closing to start the home modifications. He receives tax-free proceeds of $444.22 per month for as long as he remains in the home (tenure payment) and also sets aside $25,000 in a HECM line of credit which will grow at 3.090% per year – this gives him access to more money.*** His only monthly responsibility will be to pay for property taxes, homeowners insurance,
and HOA/Condo dues if applicable.
Housing wealth is a valuable and powerful tool to use in retirement income planning and can be
tailored to meet the goals and needs of the borrower. A HECM is insured by the Federal Housing
Administration (FHA) and has many safeguards to protect the consumer and their estate. This
product is no longer the loan of last resort.
If you have additional questions about HECMs, Susan Pomfret is here to help. Reach out today for
more information about this retirement income option at 401.595.7300 or
*U.S. Bureau of Labor Statistics, Consumer Expenditure Survey, 2019: Table 1300. Age of reference
person: Annual expenditure means, shares, standard errors, and coefficients of variation.
**Masotti, Paul J et al. “Healthy naturally occurring retirement communities: a low-cost approach
to facilitating healthy aging.” American journal of public health vol. 96,7 (2006): 1164- 70.
***Consult a tax professional. Based on an initial note rate of 2.590%.
Susan Pomfret, RICP is Senior Vice President, HECM Lending Division with CrossCountry Mortage, LLC