Liquidity vs. Longevity: What the Retirement Affordability Gap Means for the Economy and Housing Older Adults

Dan Lindberg
6 days ago
3 min read

TL;DR

In most states, seniors are on track to outlive their retirement savings.
Tightened household budgets increase the attractiveness of service-light, cost-predictable housing options.
Macroeconomic effects include a multi-decade increase in labor participation from older adults as consumer spending shifts towards essentials and healthcare.
Local housing market impacts could include greater demand for single-level homes, ADUs, and 55+ rentals.
Assess factors such as local cost burdens, care cost trends, and workforce participation to inform decisions during project planning or due diligence.

McKnight’s Senior Living flagged a sobering statistic this week: seniors are on track to outlive their retirement savings. The underlying Seniorly analysis estimates that retirees in 41 states and D.C. face an average funding gap of about $115,000, with only nine states showing a surplus. That gap serves as a quick proxy for affordability headwinds, where price sensitivity will be most acute for housing providers focused on older adults.

Consumer expectations confirm that many Americans are aware of this retirement affordability gap. Northwestern Mutual’s 2025 study finds Americans say they need $1.26 million for a comfortable retirement, and 51% believe they could outlive their savings. Meanwhile, care costs continue to rise. In 2024, assisted living’s median was roughly $71,000, up about 10% the prior year. Together, these forces tighten household budgets, lengthen working lives, and raise demand for service-light, cost-predictable housing options.

How Seniors Outliving Savings Could Impact the Economy

Growing labor supply from older adults. Participation among retirement-aged individuals averaged about 20 % in 2024 and has been on a multi-decade upward trend. If more households fear outliving their savings, partial retirement and flexible work arrangements are likely to persist, moderating wage pressures in some local labor markets while also altering spending patterns.
Consumption mix shift. A higher share of fixed-income households suggests a preference toward essentials and healthcare. Discretionary categories become more cyclical. Rising housing and care costs crowd out non-essentials for a larger base of older households. Evidence suggests that senior housing behaves more like a luxury good than a necessity, as consumers can often find viable alternatives or delay transitions.
Distributional and geographic effects. States where expenses exceed savings may experience greater senior out-migration, multi-generational living arrangements, and delayed transitions into care settings. Surplus states may attract in-migration of retirees with moderate means.

Longevity vs. Liquidity: Local Housing Market Impacts for Older Adults

For-sale: Downsizing remains hard where small, accessible homes are scarce. Expect demand for single-level, modest-footprint homes near desired services and amenities, plus interest in ADUs to enable aging in place within family networks. High-gap states should see stronger price sensitivity and more “sell high, buy cheaper” interstate flows.
Rental: Growth in 55+ rentals and service-light active adult formats where monthly costs undercut the total cost of aging in place. Engineer “predictable-cost” lease, bundle core utilities/internet into base rent, and pair with opt-in service tiers.
Cross-over with senior housing: If senior housing rates keep rising, tenure in active adult may lengthen as households delay higher-acuity moves. Markets with deep negative savings gaps will require sharper price stratification or alternative financing pathways.

A Due Diligence Checklist for Senior Housing: What to Know

Local elder cost burdens: Size the price-sensitive segment and stress-test rents.

Measure the share of 65+ households spending ≥30% of gross income on total housing costs (cost-burdened) and ≥50% (severely burdened), by renter vs. owner and by income band. Compare your market to the national baseline of roughly one in three older households burdened, then test rents and fees against those income distributions to see where affordability breaks.

Care cost escalator: Underwrite with a care-cost index.

Anchor today’s assumptions to the latest national benchmarks and extend them forward with a transparent index. Layer on local adjustments and grow operating lines with relevant CPI health and housing inputs so stakeholders can see how rate paths flow from costs. Stress-test high-inflation and occupancy scenarios.

Workforce and participation: Calibrate service models in markets with high 65+ labor force participation.

Track local participation and the part-time share among older workers to understand how many residents are likely to keep working. Markets that skew higher may favor flexible dining, transportation, and lighter service packages that accommodate variable schedules without increasing base rents.

Product-market fit tests: Survey willingness to trade services for lower base rent. A/B test amenities that lower residents’ total cost of living.

Use short preference and pricing surveys to see which optional services reduce the total monthly spend for prospects, then test a housing-plus-community core with add-ons. Monitor aging-in-place preferences and position offerings that provide cost predictability and control over service intensity.

Dan Lindberg is the founder and principal of Applied Economic Insight ® LLC.