Dramatic Drop in Housing Values Could Delay Retirement for Homeowners

For those approaching retirement age, the value of their homes accounts for a majority of total net worth1. 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 is available on the Principal Funds Web site at http://www.principalfunds.com/allweb/docs/principalfunds/MM3965_ HousingWhitePaper.pdf.

About Principal Funds

Principal Funds is a leading provider of mutual fund solutions, with more than $59 billion2 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.3 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.

About the Principal Financial Group

The Principal Financial Group® (The Principal®)4 is a leader in offering businesses, individuals, and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $308.0 billion in assets under management5 and serves some 19.0 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.