Do People Plan to Tap Their Home Equity in Retirement? The question goes to the heart of the reverse mortgage equation and is the subject (and title) of a recently released study/survey from Boston College’s Center for Retirement Research.

Tapping home equity to pay for retirement living expenses is been viewed by the current generation of retired homeowners as a last resort. Many still receive defined benefit pensions and, though they have accumulated substantial home equity, regard it as, at worst an insurance policy against catastrophe and, at best, as a bequest to be left for children or charity.

The purpose of this study is to determine if attitudes among soon-to-be-retired babyboomers are any different with regards to using home equity for retirement. After all, the home is now the major form of savings for most households, fewer babyboomers can count on the security of a defined benefit pension and the majority of households recognize they have not saved adequately for retirement.

Nonetheless, nearly three-quarters of the survey respondents said “no” they do not plan to use accumulated home equity for ordinary living expenses in retirement. Only six percent had plans to use their home equity and twenty-two percent were not sure. The study identifies three characterisitics as important factors in explaining the “yes” responses:

• people having expectations of an inadequate retirement income were more likely to expect to use home equity;
• interestingly, people having an outstanding mortgage (i.e. not “paid-off”) were more likely to expect to use home equity for retirement living; and,
• type of pension plan: respondents with less secure “defined contribution plans” (as opposed to guaranteed “defined benefit” pensions) are more likely to expect to tap their home equity in retirement.

The study also asked about how people who expect to use their home equity in retirement will actually access the resource. Overall, 15% expect to do so via reverse mortgage. Surprisingly, as the following table from the study shows, older respondents are less likely to use the reverse mortgage vehicle.

A further breakdown of the characteristics of people planning to utilize reverse mortgages is provided in the detailed survey data:

Method Used To Access Home Equity in Retirement
	Down- size	Reverse Mortgage	Home Equity Loan	Not Sure	Total
Gender
Male	58%	7%	12%	23%	100%
Female	51%	23%	11%	15%	100%
Age Group
50-54	54%	16%	6%	25%	101%
55-59	54%	17%	13%	15%	99%
60-65	60%	5%	20%	15%	100%
Region
East	48%	15%	16%	22%	101%
South	57%	12%	18%	13%	100%
Midwest	50%	11%	7%	32%	100%
West	63%	18%	5%	14%	100%
Income Group
<$50k Income	39%	20%	4%	37%	100%
$50k-$99.9k	62%	20%	7%	10%	99%
$100k-$149.9k	57%	16%	19%	8%	100%
$150k+	62%	6%	25%	7%	100%
Education Level
HS Diploma or Less	54%	17%	11%	18%	100%
Some College, No Degree	54%	5%	11%	30%	100%
College or Some Grad School	57%	17%	12%	15%	101%
Grad School	54%	16%	12%	18%	100%
Marital Status
Single	24%	38%	10%	29%	101%
Married	54%	11%	13%	22%	100%
Divorced, Separated, Widowed	83%	2%	5%	9%	99%
Race
Hispanic	59%	10%	24%	8%	101%
Black	13%	27%	19%	41%	100%
All Other	60%	14%	8%	18%	100%
Respondents with plans to use home equity in retirement: 158 out of 2,673 total respondents (6%). Respondents with plans to use reverse mortgage: 23 out of 158 total respondents (15%).
Source: Boston College CRR, Survey of Retirement Preparedness and Home Equity

Some observations:

• only 23 out of 2,673 survey respondents (less than 1%) think they will use a reverse mortgage to access home equity in retirement;
• only 2% of divorced, separated or widowed respondents who will access home equity for retirement think they will use a reverse mortgage. The overwhelming majority of this group think they will access their home equity by downsizing.
• singles, females and blacks appear the groups most likely to opt for a reverse mortgage. This concurs with the recent HUD-sponsored study that showed single females to be the dominant borrower group in the Home Equity Conversion Mortgage (HECM) program.

This Boston College survey data is interesting but should be taken with a grain of salt. For one thing, as noted, the sample size for people planning to use a reverse mortgage in retirement is quite small. For another, the results may also reflect a delay or aversion on the part of many to come to grips with retirement finance realities. The study’s authors put it this way:

But given that the retirement landscape is becoming more treacherous, that picture may well change. Indeed, the equation suggests that being inadequately prepared for retirement, having to rely on a defined contribution plan, and having a mortgage are all positively related to plans to tap home equity in retirement. These factors — inadequate preparation, reliance on defined contribution plans, and having a mortgage in retirement — are all on the rise, suggesting that a similar survey five years from now will show significantly more people planning to tap their housing equity to cover living expenses in retirement.

Social tagging: HUD Reverse Mortgage

A Few More Related Articles of Interest:

How Taxes Can Take an Unexpected Bite Out of Retirement Savings

Inverse Mortgage vs Reverse Mortgage

Met Life Predicts Surge in Reverse Mortgages

NY Times: Beware of Reverse Mortgages

How Can Reverse Mortgages Discriminate by Age?