Aging in Place Can Be Expensive, but These Little-Known Resources Can Help With High Housing Costs
We know most older adults want to stay in their homes as they age, but the cost of upkeep can be a strain on limited incomes.
That includes property taxes. Home prices have skyrocketed nearly 20% in the past year, and these rising values often result in higher bills. While property taxes vary greatly by location, the average U.S. home’s property tax bill was 4.4% higher in 2020 compared to 2019. This year is expected to be worse, with property taxes expected to rise by around 6.5%.
Meanwhile, seniors' incomes aren't keeping pace.
“[Older adults] are certainly vulnerable, and I think it’s not intuitive they would be,” says Geoffrey T. Sanzenbacher, a research fellow at the Center for Retirement Research at Boston College as well as an associate professor there.
From taxes to mortgages to maintenance costs that rise as a home ages, many seniors are struggling to make ends meet when it comes to one of the pillars of a comfortable life: stable housing. Fortunately, there are resources that can help if you or an older loved one need assistance:
How to get help with property taxes
Property taxes in particular can “eat away at your income,” Sanzenbacher says. These taxes are influenced by your home’s value. With home values soaring, that unfortunately means some homeowners' property taxes are also rising.
That’s an issue for retirees relying mostly on Social Security. The program makes up 90% of monthly incomes for one in four recipients, according to the Center on Budget and Policy Priorities.
Each year, the Social Security Administration looks at inflation in order to decide how much Social Security checks will increase for the following year. Prices are up by more than 5% from a year ago, and Social Security checks are projected to increase about 6% for 2022, but that’s still nowhere near the growth in home prices.
“So if you’re relying solely on Social Security, then your income just grows with the average wage index, and your property taxes rise at the rate of home values,” he says. “So especially lower and middle income folks - home prices rise faster than wages.”
Fortunately, nearly all states offer some sort of property tax relief programs that seniors can take advantage of. In some cases, they even allow you to defer your property tax until you die or sell your house. (The way this is typically structured is that deferred taxes plus accumulated interest become a lien on your property, which can be settled when the property changes hands upon your death.) Other programs cap taxes at a certain percentage of your income, or exempt the first $25,000 of your home's value.
Property taxes – and the type of exemptions available – vary greatly depending on where you live. The nonprofit Lincoln Institute of Land Policy maintains a database of states' various property tax relief programs. They can be the boost that helps you keep your home or breathe a small sigh of relief. "There's a lot of eligible homeowners who are not actually applying and benefiting from the programs," says Adam Langley, a researcher at the Lincoln Institute of Land Policy who has written a number of reports on property tax relief.
That's because these programs can be complicated to apply for in some cases, and because there's just not enough conversation and awareness. That means, "a lot of people are leaving money on the table," Langley says.
How to budget for home maintenance costs
Maintenance costs can also be prohibitive, especially with older houses. In Cleveland, director of aging Mary McNamara says most of Cleveland’s housing stock is around a century old, often with decades of deferred home repairs that are too expensive for elderly homeowners on fixed incomes.
“Many people are living in homes that need modifications to be able to age in place,” McNamara says. “A 100-year-old home, if it's had any deferred maintenance because of fixed incomes that come with retirement — roofs, electrical, porch, plumbing, all those things need to regularly be maintained. But then the issue of how do we also modify a home so that people can live on one floor, whether that's adding lifts or wheelchair ramps, making bathrooms accessible.”
Experts say you should expect to spend between 1% and 4% of your home’s value on maintenance every year. That means if you own a house that’s now valued at $400,000, you’ll need anywhere from $4,000 to $16,000 each year to keep it in good shape. If any maintenance is deferred, or if the house is getting older, expect that number to be on the higher end.
McNamara says older folks in Cleveland want to age in their homes and so the city helps them with programs that pay for home repairs for seniors on a limited basis.
The city is the poorest large city in the country, with 22.7% of seniors living in poverty, part of an upward trend there.
“I think there's a portion of the population for whom [it] is very possible in Cleveland to retire comfortably. I think there's also this population, though, that is living on really Social Security alone,” McNamara says. “And that can be really challenging for them.”
Reverse mortgages can help you tap your equity
One positive outcome of higher home values is increased home equity for owners. Reverse mortgages offer one way for homeowners ages 62 and over to convert a portion of that equity into payments.
A similar option to property tax deferrals, reverse mortgages are loans that rely on your house as collateral. “A reverse mortgage is like a forward mortgage in that it involves a loan which is secured by the house,” says Jack Guttentag, a retired economist who now runs the website The Mortgage Professor and is a proponent of reverse mortgages in some situations.
“What makes it reverse is that the borrower, instead of getting a large amount of money upfront and paying it off over time, receives money in a variety of possible ways and doesn’t have to repay it until he leaves the house or dies,” Guttentag explains.
It can be a tricky process, he notes, with a lack of transparency around lender rates (which he attempts to remedy in part by providing updated comparisons of rates on his website). Estate heirs are sometimes opposed to the owners using reverse mortgages, Guttentag says, since “when the borrower dies the loan has to be repaid and it’s repaid by selling the house and then whatever is left over goes into the estate.”
Regardless, he says you as a homeowner have to make the decision that’s in your personal interest. That also goes for deciding how you want to get your reverse mortgage payments, which can end up totaling around 60% of your home's equity (although that varies depending on the type of loan and other factors).
“The better option is the one that best meets the needs of the particular homeowner,” Guttentag says. “Too many take out reverse mortgages in cash in the first year, and then they have nothing left later. That’s a poor option but it’s one that people who are in financial distress may select. The safer option is the 10 year payment where you get a payment every month while you live in the house.”
Lastly, there’s the roommate option for lowering expenses. “I know it may not work for everyone, but I really think some seniors should consider living together (think Golden Girls),” says Robin Giles, a certified financial planner in Katy, Texas. “Often seniors are widowed and don’t have the ability to live on their own with half the Social Security income and all the housing costs as before they were widowed. This arrangement helps financially, but it can also helps with loneliness, care and support issues.” And it can be fun.
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