Home Equity and Retirement
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A new study from the University of Michigan Retirement Research Center sheds light on the prospects for baby boomers to use their home equity to finance retirement.
It’s long been noted that home equity is one bright spot in an otherwise bleak retirement financial picture. By virtually all accounts, home equity is the single largest wealth holding for retirees and near-retirees who haven’t set aside enough of other savings. According to the Michigan study, one-third to one-half of the average “early baby boomers” (EBB) wealth is in the form of home equity.
Not surprisingly, many have suggested that home equity is the key to financing America’s retirement needs in the face of growing longevity and diminished government resources.
The Michigan study included the following survey question:
“On a scale from 0 to 100, where 0 equals absolutely no chance and 100 equals absolutely certain, what are the chances that you will sell your house to finance your (and your husband/wife/partner)’s retirement?”
At first blush, the survey results don’t appear encouraging for those looking to home equity to bail Americans out of a jam. This may be further reflection of the apparent overconfidence felt by Americans when it comes to their retirement prospects:
“…60% of homeowners stated they did not plan to sell their homes to finance retirement, and close to 70% of respondents felt there was a minimal (10% or less) chance they would sell their homes to pay for retirement. In other words, most older Americans report they will not sell their homes to finance retirement, even though this store of wealth is accessible for consumption purposes.”
On the other hand, phrasing of the survey question did not allow for other “middle road” options. For example, it shouldn’t be concluded that older Americans would be similarly opposed to accessing retirement resources by borrowing against their home equity. Indeed, reverse mortgages may fit very nicely with older American’s apparent strong desire not to sell and the strong need to supplement other retirement income streams.
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