The sandwich generation -- those who have children and parents still living -- may be getting squeezed even more than expected as the rate of home foreclosures rises faster for seniors than for other age groups.
An adult child may be put in a position of taking in her parents if they are facing foreclosure, and that is a situation that is occurring more frequently, says Kimberly Foss, CFP, president of Empyrion Wealth Management in Roseville, Calif.
Foss says she had one family as clients where the mother lost her home and moved from one of her children to another on a monthly basis until she passed away.
"It is not a good situation and a senior citizen whose home is foreclosed does not have a lot of options," Foss adds. "It puts a lot of pressure on the financial advisor to protect the principle and interest of their clients' savings."
Louis Papa, chief investment strategist for Penn Liberty Bank Wealth Advisors in Wayne Pa., says that some of the seniors who are getting in trouble are those who have used home equity to educate their children or pay for weddings, thinking they could rebuild their equity. Then when the housing market collapsed and the financial crisis hit, they found it would take too long to rebuild it.
"We've seen a growing demand for guaranteed types of investments such as guaranteed annuities because of this," Papa says. The growing foreclosure rate for seniors points out their need for a financial advisor, "even if it is just someone to bounce ideas off of and keep them from making bad decisions," he says.
Despite working for years and saving, a growing number of seniors are facing foreclosures on their homes, according to a recent study by AARP's Public Policy Institute.
"Looking at nationwide loan-level data for 2007 through 2011, the analysis finds that more than 1.5 million older Americans lost their homes since 2007," says the study.
"The study also finds that the percentage of seriously delinquent loans -- those in foreclosure and loans 90 or more days delinquent -- increased from 1.1% in 2007 to 6% as of December 2011 for people age 50 and older," the study shows. The rate for those under 50 increased from 1.6% in 2007 to 7.5% in 2011. Although the overall rate is still higher for younger Americans, the rate of growth is higher for older Americans (a 456% increase for those over 50 and 361% increase for those under 50), the study says.
What may be more frightening for seniors is that the rate of home foreclosure is higher for people 75 and older, the study says. The study shows people age 75 and older have a 3.2% foreclosure rate, compared to 3% for those age 50 to 64 and 2.6% for those 65 to 74. In 2011 alone, 1.9% white borrowers over age 50 were foreclosed on, but Hispanics and African Americans fared even worse with nearly double the rate of foreclosures (3.9% for Hispanics and 3.5% for African Americans) on prime loans.
"Older homeowners often rely on their home equity to finance their needs in retirement -- things like health care, home maintenance and other unexpected needs," says Debra Whitman, AARP executive vice president for policy. "The fact that so many older Americans have no equity at all is troubling."
As of December 2011, some 600,000 loans were in foreclosure and a similar number, 625,000, were 90 or more days delinquent for people age 50 and older. For that age group, as of December 2011, 16% of loans, which translates to 3.5 million loans, were underwater, meaning the amount owed on the loan is greater than the value of the property.
Financial advisor Foss says, "It is not a pretty picture. Older parents are moving back in with their adult children, and you hope all siblings step up to help. This is not because these older people have been reckless. But if the number of foreclosures grew so much since 2007, we can only imagine what will happen in the future."
A 65-year-old couple today has a 36% chance that one of them will live to be 95. The home building industry is beginning to respond by building homes meant for multiple generations, Foss notes. Also if a person has equity in a home, he or she can get a reverse mortgage to meet expenses.
Another option is to take out an insurance policy on the portfolio so the insurance company pays a guaranteed percentage if the person goes through their portfolio.
"This crisis is far from over," Whitman says. "Many loans remain in danger of falling into foreclosure. The collapse of the housing market has been especially painful for older homeowners."