Dramatic Drop in Housing Values Could Delay Retirement for Homeowners
DES MOINES, IA, September 15, 2008 -- For those approaching retirement age, the value of their homes accounts for a majority of total net worth. A new research paper from Principal Funds geared for financial professionals explores how the dramatic and historic decrease in housing values – approximately $400 billion between 2007 to mid-2008 – has significantly altered the retirement plans of many Americans.
The Impact of Diminishing Wealth on Future Consumption: How Housing Wealth Affects Retirement Planning identifies the problems related to the decrease in housing wealth and focuses on its ramifications for retirement planning.
"The goal of the paper is to help financial professionals recognize that retirement planning is being influenced by factors that traditionally may have been outside of their scope," said Kevin Morris, Principal Funds marketing director. "This situation poses significant challenges to those engaged in retirement planning."
The paper finds that since home ownership increases with age, older people rely more on their home equity as a source of wealth and as insurance against unforeseen negative life events, such as serious illness or the death of a spouse. Home value appreciation typically occurs over decades, so recovering the equity that has been lost may not happen quickly.
Decreased home values also have contributed to reduced confidence in retirement planning for people of all ages, according to the report. However, the report acknowledges that the current housing problem must be considered alongside other critical issues related to retirement planning including longevity risk, asset allocation, health care availability and costs, withdrawal rates and inflation.
The paper ends with a list of 17 suggested questions for financial professionals to ask their clients in order to determine whether the decline in housing wealth has forced them to change their retirement plans. Sample questions include:
- Have you estimated how much your house has depreciated within the past two years?
- How much did housing equity contribute to your retirement plans?
- Has this housing price decline affected your planned retirement date?
- How has the decline in your housing wealth affected your investment risk tolerance?
The housing wealth white paper (PDF: 519 KB) is available on the Principal Funds Web site.
About Principal Funds
Principal Funds is a leading provider of mutual fund solutions, with more than $59 billion in assets under management. Principal Funds offers global investment management, asset allocation expertise and is a retirement leader. Principal Funds is the fifth-largest manager of lifecycle funds (including target-date and target-risk funds) in the industry. Principal Funds are sold through a nationwide network of financial professionals associated with brokerage and financial planning firms. The companies that make up Principal Funds are members of the Principal Financial Group®. For more information, visit www.principalfunds.com.
###
Click here for more material dealing with current trends, opinion, news, legislative action, investments, marketing, sales, consulting, and legal issues on 401k plans.
This is a press release provided by the company or its representatives. 401khelpcenter.com, LLC is not the author of this release and is not associated or affiliated with any firm or organization mentioned unless otherwise noted. Use of any information obtained from this release is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by 401khelpcenter.com, LLC.
