Younger Retirees Rely More on Social Security, Creating Mortgage Challenges

For nearly 10.5 million Americans aged 65 and older with a mortgage, retirement income is a pressing concern. A recent study reveals a critical trend: younger retirees are significantly more reliant on Social Security benefits than older generations, a dependency that complicates managing housing costs in retirement. This reliance, coupled with the decline of traditional pensions, means that strategic financial planning is more important than ever for homeowners approaching retirement age.

Why Are Younger Retirees More Dependent on Social Security?

According to the Employee Benefit Research Institute's 2024 Spending in Retirement Survey, there is a stark generational difference in income sources. Retirees aged 74-75 reported that 52% of their income came from Social Security. In contrast, those aged 62-63 derived a substantial 67% of their income from these benefits.

This heightened reliance is not accidental. Certified financial planner Andrew Latham attributes it to a fundamental shift in the retirement landscape. “Younger retirees leaning more on Social Security tracks well with the decline of traditional pensions and the challenges in building substantial retirement savings,” Latham noted. The move from employer-guaranteed defined-benefit pensions to individual-driven defined-contribution plans like 401(k)s has transferred more risk and responsibility to individuals. Inconsistent contributions and market volatility can cause these plans to fall short, making Social Security a necessary lifeline for many.

Is Social Security Intended to Be a Primary Income Source?

The Social Security Administration (SSA) is clear that its benefits are not designed to fund retirement alone. The agency states that Social Security typically replaces only about 40% of pre-retirement earnings. To maintain a comfortable standard of living, retirees need supplemental income from savings, investments, or other pension plans. With the average monthly benefit at approximately $1,976 as of January 2025, a retiree relying on it for two-thirds of their income would have a limited budget for housing, healthcare, and other expenses.

Despite concerns about the program's long-term funding, the SSA's Board of Trustees projects that dedicated revenue will allow it to pay all scheduled benefits until 2035. After that, without congressional action, about 83% of benefits would be payable. This suggests that while changes may be necessary in the future, immediate cuts are unlikely due to the program's status as a politically sensitive issue.

What Options Do Retirees with Mortgages Have?

Facing a mortgage payment on a fixed income requires careful consideration. The trend of "aging in place" is strong, with an AARP survey finding 75% of adults over 50 prefer to stay in their current homes. For those determined to do so, several strategies exist:

• Delay Retirement: Research from the Center for Retirement Research at Boston College indicates that households with significant mortgage debt often retire about a year later than those without, providing more time to save and pay down the balance.
• Leverage Home Equity: With home equity at historic highs for many seniors, a Home Equity Line of Credit (HELOC) can be a tool for funding essential home modifications or consolidating debt. "We are seeing more seniors taking out HELOCs, for example, for home remodeling and updates," said Austin Kilgore, an analyst with the Achieve Center for Consumer Insights. It is crucial to understand that a HELOC uses your home as collateral and must be managed carefully.

Paying off a mortgage before retirement is the ideal scenario, but it is not feasible for everyone. For those entering retirement with housing debt, the key is to create a comprehensive budget that realistically accounts for all income sources and expenses. Based on our experience assessment, consulting with a HUD-approved housing counselor or a fee-only financial advisor can provide personalized guidance for navigating these challenges.