Personal Finance

The Silent Retirement Killer Draining Baby Boomer Savings

David Beren

Published: November 23, 2024 9:30 am

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• Increased housing prices are squeezing baby boomers. 
• Growing insurance premiums and property taxes are taking a chunk of baby boomer savings. 
• Downsizing and relocating are now real-world possibilities for many retired baby boomers. 
• Also: Are You On Track to Retire? Take This Quiz and Find Out (Sponsored) 

Anytime you live on a fixed income and discover rising housing costs, it poses a real problem, something that is especially true for the baby boomer generation. In the case of baby boomers, this issue is really beginning to stand out over the last few years as these increased costs are silently killing the retirement savings of an entire generation. 

Unfortunately, when things become unaffordable, and income doesn’t increase, these retirees could be forced back into the workforce. While the hope is that this is a last resort, there is no question rising housing costs are devastatingly affecting baby boomers’ finances across the country.

According to a Redfin survey, home prices have doubled over the last decade. This means that for baby boomers, the cost of owning a home is the highest it has ever been. This translates to increased property taxes and insurance rates, which are some of the biggest expenses that can start chewing through retirement savings. 

Mortgage Rates

Considering that mortgage rates are so high, at the current fixed mortgage rate, the cost of a median-priced home priced at $420,000 requires a $2,864 monthly payment. Had someone purchased this home in 2019, before the pandemic, at a 4% interest rate, the cost of the same home would be $2,210 or $650 less. 

For a boomer, $650 per month equals almost $8,000 per year of savings that can better go to enjoying a retirement lifestyle. This money can be spent on doing just about anything else, up to and including traveling, which is exactly what a baby boomer is likely hoping to do in retirement, not watching their savings drain. 

Insurance Premiums

Another avenue that can significantly affect retirees on a fixed income is insurance premiums. This is especially true in California and Florida, where impacts from climate changes like hurricanes can cause big increases in insurance premiums. 

According to the U.S. Census Bureau, its most recent American Community Survey indicated that the average annual income for a retiree in 2024 is $31,390. Out of this money, retirees in some states spend between 6 and 10% on insurance premiums for their homes alone. In Florida, this number can be as high as 34%, a silent killer for the millions of retirees who have moved to Florida looking for better weather and a more laid-back lifestyle. 

As a result, a 2023 Gallup study indicated that one-third of senior citizens no longer have enough money to live comfortably while retired. 

Property Taxes

Of all the concerns around retirement savings, property taxes are the biggest red flag. This is especially true for those who already own a home at a lower mortgage rate but still see huge property tax jumps. In response to rising housing prices, local governments have increased property taxes to generate more revenue, disproportionately affecting retirees on a fixed income. 

For example, Lanell Griffith and her husband paid less than $2,700 in 2022 property taxes on their home in Topeka, Kansas. Fast-forward to 2023, and their bill was $3,700. They expect their 2024 bill to jump over the $4,000 annual price or at least a $1,300 jump annually in less than two years. 

This jump can devastate retirees on a fixed income and significantly impact their quality of life. Worse, some states like Wyoming and Georgia attempted to help home buyers by reducing property taxes, but officials vetoed such efforts, citing overall economic concerns for the state. 

For this reason, many retirees who have seen their home values increase are looking to downsize and take the additional profits from their existing homes. 

Deciding to Downsize

The baby boomer generation is considering downsizing in considerable numbers to offset the silent killer of rising housing costs. While downsizing has some benefits, like needing less space, financial considerations are now the biggest motivator.

If you move to a smaller home, you can benefit from reduced utility bills. The biggest perk is taking any equity out of a house that is silently killing the savings of the boomer crowd and using that cash to purchase a home with a smaller mortgage. 

The additional equity could also enable a baby boomer to have more cash on hand, which could be used to increase overall financial security. More cash from selling a home and downsizing could be used to offset rising insurance prices and property taxes instead of pulling from existing savings. 

According to Redfin, the likelihood of equity being strong is because 54% of baby boomers believe they own their homes free and clear. This means that whatever price they sell a home becomes pure profit, which can be dropped into savings and used to purchase a downsized property. 

Relocating

One big consideration with downsizing that doesn’t get enough attention is the choice that comes with it. You are stuck with a lawn and other outside maintenance in a home. However, switching to a retirement community or senior living location may help remove these stresses and financial burdens. 

You can relocate near family members, which offers big benefits if you want to see family regularly and see your grandchildren grow up. For a boomer who has a choice of aging in place or making a move, relocating may be a way to transition to a better lifestyle. 

Best of all, the financial benefits of relocating can be an easy way for fixed-income people to stop the savings drain. If you have enough equity in your existing home to help offset a move, you could even end up net positive from the move, allowing yourself to travel more and see the world. 

Millennial and Gen Z Benefits

While not a major consideration for baby boomers, there is a side benefit to them moving for other generations. As these downsizing and relocation efforts happen, the smaller starter homes of baby boomers are coming on the market. 

Accordingly, the price of starter homes will drop, which makes homeownership more likely for these two age groups. A recent report indicated that baby boomers make up the largest share of home sellers in 2024 at 45% of sellers. In response, 38% of millennials have surpassed baby boomers as the largest generation buying homes. 

The best part is that millennials earn more, making them more likely to pay a premium for these homes. This ties directly back to the notion that any time a baby boomer can sell a home and earn additional equity, it can help replace whatever savings have been drained from rising costs elsewhere.