The safety net is almost gone, the nest egg is cracking.
Many Americans have recently found themselves changing their retirement plans after losing a substantial amount of home equity as the housing market and the overall U.S. economy struggle. These folks face years of living on fixed incomes from sources such as pensions, 401(k)s, individual retirement accounts and Social Security but don't have the time to recover their losses.
Homeowners who tapped their home equity find themselves with no more funds to extract. Some have been laid off, relinquished their home in a foreclosure or lost pensions after their employers' business failed. Ideas of a comfortable retirement full of relaxation and travel have been abandoned.
The good news is that about 30% of homeowners have no mortgage at all. So even though their properties are probably worth less now than a few years ago, these people can tap into that equity cushion if necessary.
The bad news, however, is that about 1 in 6 with a mortgage now owe the bank more than their homes are worth, according to Moody's Economy.com. Most of these are property owners who purchased their homes within the last few years or refinanced their properties and siphoned off too much equity.
With that in mind, it's time for Americans to explore options other than relying on home equity, especially if they have no retirement investments or savings. These include downsizing their home, selling assets, postponing retirement by working longer and signing up for a reverse mortgage. Each option has its challenges and risks.
Ken King, 61, once planned to retire in his early to mid-60s. The value of his home has dropped $70,000, so he has scrapped plans to sell the five-bedroom house and downsize, because the savings won't be substantial enough to make it a smart move. He's also seen his 401(k) lose value.
King, a credit counselor in Sheboygan, Wis., said he probably would work into his early 70s to compensate.
"This is something I wouldn't have considered even thinking about 1 1/2 years ago," said King, adding that priorities have changed this year among those he counsels.
"Now we're talking to people about what they have to do to survive," he said.
King's own strategy of working longer is a growing trend. AARP reported in April that almost 1 in 4 people ages 45 to 54 planned to delay retirement, with 1 in 5 people ages 55 to 64 thinking the same.
