How Buying That Big House Just May Ruin Your Retirement

Source: iStock
Source: iStock

Always wanting more in life is one of the many perils of consumerism. In America, shopping isn’t merely an activity to pass the time, it’s an addiction that produces financial side effects for life. The more we buy, the more space we need to store everything. Before you know it, pay raises, job promotions, and potential retirement savings are being used to pay for a mortgage on that larger house you just had to have.

How much room do Americans think they need these days? Since the 1950s, the average square footage of the American home has increased every decade, according to research from RealtyTrac. A modest 1,400 sq. feet average in the 1950s has been super-sized to today’s average of 2,312 sq. feet. Unlike the Great Depression, when the average home size declined slightly in the aftermath, the housing bubble collapse of yesteryear failed to reverse the trend of larger homes.

Sadly, the majority of Americans are still not living in a home that is the size they want. A recent analysis from Trulia reveals only 40% of respondents say they are living in a home that’s their ideal size, while 43% believe their dream home is somewhat or much larger than their current residence. Only 16% say their ideal home is smaller than their existing home. Several factors influence whether people desire a different-size home, but every generation as a whole shows a bias toward a larger home. Even baby boomers, who might have an empty nest and be nearing retirement, prefer a larger home.

Bigger is not always better. Lifestyle inflation is a real threat to your retirement. No matter how we come into extra money, we always seem to find a way to spend it on material things — clothes, furniture, cars, homes, etc. In fact, nearly a third of households making at least $75,000 a year live paycheck-to-paycheck at least sometimes. Forty-four percent of those households also admit that lifestyle purchases like dining out, clothes shopping, and entertainment cause them to save less money than they should each month.

Sooner or later, overspending catches up to you. This may not occur until retirement, but it will not be pleasant. You may have to work longer to compensate for a lack of savings, or make debt payments until you die. From 2001 to 2011, the median amount of mortgage debt carried by homeowners over age 65 surged 82%, from $43,400 to $79,000, according to the Consumer Financial Protection Bureau (CFPB). The percentage of homeowners over age 75 with mortgage debt nearly tripled during that period. The report found that from 2007 to 2011, the percentage of older homeowners who were seriously delinquent in paying their mortgages (over 90 days late or in foreclosure) increased fivefold.

“Many homeowners have experienced more dire consequences too when they have been unable to handle the financial burden of mortgage payments on top of their other living expenses. The high foreclosure rates during the financial crisis show the difficulty of carrying a mortgage when experiencing a financial shock,” said the CFPB report. “For this reason, carrying a mortgage well into retirement poses many potential challenges for older Americans who typically live on reduced income yet face increased expenditures for health and long-term care.”

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