End-of-year round-ups are often forward-looking and cheerful, and a recent report from some bankers who sell home loans was no exception. What’s gotten the National Reverse Mortgage Lenders Association so excited was that in the past two years, the value of all the homes owned by America’s elderly has increased faster than the debt that group still owes in mortgage payments. In the fall of 2013, the nation’s elderly were estimated to have owned $6.28 trillion in residential real estate and collectively owed $1.43 trillion on their mortgages. Two years later, the houses were worth 15 percent more, but the mortgage debt had only increased 2 percent.
This bodes well for those who issue reverse mortgages. (In a reverse mortgage, a bank pays a homeowner a monthly sum as an advance on his or her home equity. When the homeowner dies, the reverse-mortgage lender has a claim on the house.) Bankers who specialize in reverse mortgages are pleased that these home values are going up because they will be able to sell more reverse mortgages to the few lucky elderly who have substantial home equity. But reverse mortgages can be a sign of economic desperation—only those without other options would consider one, since they don’t tend to supply very much in monthly payments and can result in years of asset accumulation being handed over to a bank instead of passed down to children.
But things can always be worse: In the next decade, there will be whole swaths of the America’s elderly population that won’t even have equity to draw on and will be in serious financial trouble.
To start, there are going to be more elderly Americans than ever before. In 2010, Baby Boomers started turning 65, and 72 million Americans will turn 65 over the next 20 years, at a rate of 8,000 per day. Many will turn 80 (and older) for many decades after that. The rate of increase of 80-year-olds is worrisome because old age is a risk factor for poverty.
A back-of-the-envelope estimate suggests that the number of elderly Americans in poverty will increase substantially in the coming decades. In 2010, 46.6 million Americans were over 65. Using the OECD’s measure of impoverishment, which takes into account food insecurity and chronic material need, about 8.9 million of those Americans were poor or near-poor. Based on current rates of population growth and assuming no improvements in what is promised in Social Security benefits, there’s likely to be an increase in the numbers of elderly poverty from 8.9 million in 2010 to 25 million in 2050—an increase of 180 percent.
Most of this predicted 180-percent increase between 2010 and 2050—about two-thirds of it—can be attributed simply to the increase in the elderly population as Boomers get older. (The elderly population is predicted to grow about 106 percent during the same period, with the growth concentrated among those 85 and older.) The remaining third of this increase—the part that’s not just a matter of having more elderly people—is America’s weak retirement system. Established in 1935 and expanded until 1983, Social Security tends to do a marvelous job of reducing poverty rates among the elderly. But if nothing’s done between now and 2050 to strengthen the retirement system, 25 million elderly Americans will be poor.