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Cautious view of retirement

By Jennie L. Phipps ·
Monday, October 17, 2011
Posted: 3 pm ET

We went to my husband's Navy reunion last week. The group had shrunk -- 24 guys died last year, a record for us. But the other thing that kept people away from the event in Mobile, Ala., was the cost.

So many people won't or can't travel because they are worried about money. Their savings are earning an insignificant amount of interest; their homes aren't worth what they thought they'd be 10 years ago; and costs, especially for health care, are rising.

Carl Steidtmann, chief economist for Deloitte Research, which today released its quarterly index of trends in consumer spending -- the bleakest since May 2009 -- says he believes real estate is the largest retirement planning stumbling block.  "Many people at or near or in retirement had expected to be able to downsize and use some of that money for retirement funds. The decline in home prices and the inability to sell freezes their most important asset and limits what they can spend elsewhere," he says.

He doesn't see the problem going away anytime soon for a couple of reasons:

  • The housing market is a "chain letter," he says. First-time homebuyers have to be able to buy to give repeat buyers the money to sell and buy something nicer and more expensive. Today's tight credit and widespread unemployment and underemployment makes it very difficult for young homebuyers to get started.
  • Many people who owe money on their homes at high interest rates can't refinance or even resell because they are underwater -- they owe more on their homes than they are worth. A lot of homeowners at or near retirement are good payers and they have good credit, but banks won't lend on underwater properties.

If retirees could get out from under their unwanted homes or just lower the payments on them, they'd have more money to spend, but Steidtmann doesn't think many people will be able to do that because banks aren't making it easy. In fact, he's predicting another recession because U.S. banks are so intertwined with very troubled European cousins. If the European banking system contracts, we'll feel the pain, he says.

So, I guess the message is be cautious. Things could get worse before they get better.

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