Consumer Reports and Bad Mortgage Advice

I have just discovered that Consumer Reports, the go-to place for the lowdown on vacuum cleaner reliability, also gives personal finance advice. Who knew? Today I stumbled across their Money Blog, which carries a post on how Victorian House you should pay off your mortgage before you retire. It is enough to make me worry about their vacuum cleaner wisdom.

Permit me to quote the first two paragraphs:

Back when the stock market seemed to go in only one direction—up— you could make a decent case for keeping a mortgage as long as possible. Why rush to pay off a debt at, say, 6 percent, when the same money, invested in the stock market, was all but guaranteed to return 10 percent?

That kind of thinking may help explain this startling finding in a just-released Society of Actuaries report: Only 48 percent of retirees surveyed in 2009 had completely paid off their mortgages, compared with 76 percent in the group’s 2007 study.

Two problems with this jump out at me. The first is the remarkable implication that retirees were more optimistic about stock market returns in 2009 than they were in 2007. In hindsight, this was the correct stance, we all ought to have sold every share we had or could borrow in 2007 and then mortgaged the house and pawned our smaller possessions to buy stock in 2009.

But, as a matter of fact, most investors were complaisantly optimistic about stocks in 2007 and scared out of their minds in 2009. Did the author of the post forget this? Or did he just carelessly trip up his own logic?

I am voting with carelessness, partly based on the second big problem here. The “startling finding” is startling because it isn’t true. The portion of surveyed retirees in 2007 who had paid off their mortgage was 50%, not 76%. To be fair, the press release from the Society of Actuaries does say 76%. But a less careless blogger might have noted that, if true, that number would have been startling to the point of implausibility.

For one thing, it would go directly against the gist of the press release, which is entitled “Despite High Levels of Concern Over Retirement, New Actuarial Study Sees Little Change Among Americans in Planning for the Future.” For another, this is not a survey of the newly retired, but of all retirees, meaning that the 2007 and 2009 groups are largely the same bunch of old folks. In order for the number to have gone from 76% to 48% mortgage-free about a quarter of all retirees would have had to take out new mortgages on their homes.

The much more plausible and utterly non-news 50% number can be found in a table in the actual SOA report, linked to by the press release. Some people may think it is too much to ask of a blogger that he go the extra click to verify a startling and improbable statistic around which he plans to spin a post. I am not one of those people.

The post ends up recommending that you pay off your mortgage before retirement. It gives two reasons, the second of which is a logical, if a little vague, argument that paying off a mortgage is a good investment. Having already discussed that fairly complex issue three times in the last month I am not going to go into it again today. (But you can click here, here, and here if you wish.)

The other reason Consumer Reports gives to pay off your mortgage is that “our surveys have shown a strong relationship between being debt-free and enjoying a happy retirement.”

Is asking people if they are happy about some personal financial maneuver the right way to determine if it is a good idea? I wonder what you would have found in 2006 if you examined the relationship between happiness and no-money-down McMansions.

More to the point, is it not obvious to everybody else that people with no mortgage debt tend to be, on average, richer than those with debt? Couldn’t it be that retirees without mortgages tend to be happier because they tend to be richer? A person could argue that they are richer because they have no debt, but that is not as easy an argument to make as some seem to think, and in any case if being richer is the goal why are we talking about happiness at all?

My advice: stick to vacuum cleaners.


  • By Coley, April 6, 2010 @ 12:05 pm

    I think they should pay off their mortgage as soon as they retire, wait one month, and then reverse-mortgage it to “pull out that equity.” That’s the true American Dream of homeownership.

  • By Steve, April 6, 2010 @ 12:17 pm

    I used to have the CR Money Blog in my feed reader. I eventually removed it because I disagreed with half of what they said, and the other half was seemingly obvious trivialities. Either way, their posts seem to barely scratch the surface of even the most complex of issues. Not worth the ink it’s not printed on.

  • By Barbara, April 6, 2010 @ 5:14 pm

    I’m a 59 year-old single woman who would like to retire in a few years. I just paid off my mortgage because with retirement income of less than 50% of my current salary, I can’t afford to retire with a mortgage.

  • By bex, April 7, 2010 @ 1:51 am

    I like the consumer reports money advisor, but not their blog as much… They do give better advice in their newsletter (that you have to pay $20 per year for)

    @steve: Frankly, if their advice is only 50% bad, they’re doing a hell of a lot better than most financial sites…

  • By Lance, April 7, 2010 @ 11:18 am

    bex, it’s unlikely they have anything worth saying that you can’t get for free for $20/year. The only good advice they could give to people who pay for that service is to stop falling for scams, such as paying $20/year for financial advice they can get for free elsewhere.

  • By drew dowdell, April 7, 2010 @ 3:03 pm

    Considering Consumer Reports was giving automatic “recommended” ratings to new models of Toyotas without any data to back it up, they lost credibility with me a while ago. Then there was the issue of a Chevy model and Toyota model built in the same plant. The only difference between the two cars was the name on the trunk lid… yet the Chevy model was “marginal” and the Toyota model was “good”.

    They’ve been doing this kind of crap for years. I wish people would stop treating CR as if it were some sort of gospel.

  • By Manshu, April 7, 2010 @ 8:27 pm

    I found Consumer Reports really useful when I was hunting for a car. In general the site felt quite consistent, but there is really no way to verify their research independently (at least for me).

  • By getagrip, April 9, 2010 @ 2:35 pm

    The one reason I can see for paying off your mortgage prior to retirement is that it is one less large bill to deal with. Of course, this problem may also be resolved by selling the property and either renting or downsizing. The way I look at it is the less “needs” I have in retirement the more “wants” I can spend money on.

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  • By Richard Maize, January 5, 2012 @ 1:36 am

    As the spokesperson on “the business channel” and on channel 9 news with alan medelson, I have been asked about all types of business situations. As of recent times, business is changing in way people do research and quickness markets react to business influences in different fields. For example, when I started doing business as a mortgage originator in the late 80s, I would receive a rate sheet of the rates for that week. There were just 3 types of loans; a 30 year fixed, a 15 year fixed and an adjustable one year loan. The rates were based on an index over the 30 year treasury bond which moved very slowly back then. a big move in the stock market was 50 points. Compared to now, where rates can change every 30 minutes with large fluctuations in the 10 year treasuries (the new index for the long term rates). If the stock market went up or down 30 points, a news person discussing that days market conditions, might say the market was relatively flat today.

    The sophisticated stock investor using updated tools can profit on the wide shifts of the market going up and down using old techniques such as straddles to take advantage of the market moving up or down. shorts and longs as the programs can register you as a long player or short player.

    What is a good investment in todays environment especially in the long recession we are experiencing? A billionaire before it was common place to be in the billion dollar club, was asked about his secret for success. He simply says, “I buy when people need to sell and I sell when the world wants to buy.” that is easy to understand; but very difficult to follow. It is very difficult to sell a property in a bull market when everyone was jumping in and your property is appreciating monthly. But, the general philosophy is sound. don’t try to get the last dollar or try to bottom pick any market.

  • By Brenda, March 3, 2012 @ 2:47 pm

    Well I remember reading a Wall Street Journal article that advised people to pay off their mortgage before retirement because if they still had a mortgage payment they would have to take out more retirement money to pay it off and end up with their social security being taxed because of it. The article was from several years ago, but stated you could end up with less money because of the tax situation.

    I for one believe having a mortgage paid off gives you piece of mind and will make retirement easier since most people will be living on less than when they were working!

    You’d think having the mortgage paid off you’d be home free, but instead it looks like a lot of that money ends up going to healthcare costs of medicare and medigap and all the out of pockets with healthcare!

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