Retire Wise | October 2022

What Does Today’s Rapidly Changing Housing Market Mean for Retirees?

Following its September 2022 meeting, the Federal Reserve raised interest rates by 0.75%, pushing the federal funds rate to a target range of 3.0% to 3.25%. That news drove the average rate for a 30-year mortgage to 6.7% by month end, the highest since 2007, and more than double the 3.01% average from a year ago.¹ Below, we look at what this may mean for retirees seeking to buy or sell a home in the current market.

What does this mean for buyers?² 

• Higher rates have pushed monthly payments above what many buyers—especially first-time homeowners—can afford. This has resulted in a drop in demand for mortgages and, subsequently, a smaller pool of buyers who have more leverage to negotiate deals.
• That’s good news for cash buyers—many of whom are in or near retirement—who may be looking to move or downsize.
• However, buyers of all ages and at all price points may face low inventory due to a reluctance on the part of existing homeowners to give up historically low rates on their current mortgages.

Sellers can expect the following as the overheated real estate market begins to cool:³

• Rising rates over the past few months have ushered in a sharp drop in housing activity, with home prices falling in 98 regional housing markets across the United States. That means that sellers in many markets can expect to receive less for their properties than in previous months.
• Rather than take less, some sellers are simply waiting out the housing downturn.
• Sellers looking to move, who are not cash buyers, would give up historically low mortgage rates, potentially paying the same or a higher monthly payment, even when downsizing.
• While sellers may see fewer all-cash and above-asking price offers, and fewer bidding wars, this shift points to a more stable, less chaotic housing market.

Housing is one of the biggest expenses you can expect in retirement. Even those who have paid off a mortgage and own their homes outright can expect to pay annual costs that can add up quickly. This includes property taxes, homeowner’s insurance, and maintenance costs.

To learn more strategies for managing housing and other expenses in retirement, call the office to schedule time to talk.

^{1 Siegel, Rachel and Orton, Kathy. “Mortgage rates hit 6.7 percent as housing market keeps cooling.” The Washington Post, 29 September 2022, https://www.washingtonpost.com/business/2022/09/29/mortgage-rates-fed/
2 Ibid.
3 Lambert, Lance. “These 2 maps show the U.S home price correction is sharper—and more widespread—than previously thought.” Fortune, 28 September 2022, https://fortune.com/2022/09/28/housing-market-home-price-correction-2022/}

Should You Prepay Your Final Expenses?

Funeral expenses for Queen Elizabeth II, the UK’s longest serving monarch, are estimated to exceed $7.5 million.¹ That’s an unfathomable amount for those of us who were not born into royalty or don’t anticipate a state funeral upon our departure. Nonetheless, there’s no question that paying for final costs can be royally expensive—no matter who you may be. As a result, there’s a lot to be said for advanced planning, especially if your goal is to spare loved ones from financial stress as they are grieving your loss. One way to ensure that family members or other loved ones are not saddled with unplanned expenses upon your departure is to plan for those expenses now. There are several ways to accomplish that, as discussed below.

Many funeral homes offer prepaid plans. Prepaid plans are arranged with a funeral home ahead of time and typically range from $10,000 to $25,000. Most plans allow you to choose from a range of options, such as the services of a funeral director and funeral home staff, a venue for the funeral or memorial service, the type of burial, flowers, stationery and more. Plans may be paid in full or in monthly installments directly to the funeral home. However, if you move out of state, change your mind about the options or preferences selected—or if the funeral home goes out of business or engages in fraudulent practices—you could lose what you’ve already paid. There are several alternatives to pre-paying your funeral expenses that may offer greater protection, such as:²

• Burial insurance policies, which are intended to pay a predetermined amount for funeral costs and other final expenses. Policies are regulated by state and federal authorities and offer more flexibility than pre-paid funeral plans.

• Life insurance policies will pay a lump sum when you die to the beneficiary of your choice. A policy can be purchased to pay for your funeral or any other general financial needs of your survivors. The payment is made soon after you die and doesn’t have to go through probate.

• Payable upon death (POD) accounts are specially titled bank accounts that enable you to set aside funds and name a beneficiary who can gain immediate access to the money when you die since these accounts do not go through probate. While the beneficiary cannot access the funds while you are alive, POD accounts do not place restrictions on how the money can be used after your death. So it’s important to carefully consider who you name as the beneficiary.

• Trusts can also be used to pay for funeral expenses. Revocable and irrevocable trusts have different rules so make sure you consult with an estate planning professional before establishing a trust to pay final expenses for yourself or a loved one.

If you have questions about planning your final expenses, call the office to schedule time to talk.

^{1 Kesslen, Ben. “Queen Elizabeth’s $7.5 million funeral security cost will be priciest in UK history, officer predicts.” New York Post, 19 September 2022, https://nypost.com/2022/09/15/queen-elizabeths-7-5-million-funeral-security-cost-is-priciest-in-uk-history/
2 Potts, Leanna. “Smart Ways to Cover the Costs of a Funeral.” AARP, 22 October 2021, https://www.aarp.org/home-family/friends-family/info-2020/paying-for-cost-of funeral.html#:~:text=Payable%2Don%2Ddeath%20(POD,doesn't%20go%20through%20probate}

^{This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer.}