Most Boomers Don't Plan To Tap Home Equity: Survey

Most of the survey respondents who said they plan to tap into home equity intend to “downsize” (i.e., move into a smaller home). Of the remainder, a small number plan to take out a reverse mortgage. Others say they plan to opt for home equity loans, though these loans require regular payments of interest (and sometimes principal).

Of the 75% of respondents who said they do not plan to tap their equity, nearly half said they would use the equity as a last resort for living expenses or to finance nursing home care or other health emergencies. Another 20% said they plan to leave their house as a bequest either to children or to a charity.

The house is the major asset for home-owning boomers. According to the report, the average value of a primary residency of households headed by an individual aged 55 to 64 is $125,208, or 21% of a typical boomer’s wealth holdings. Other than Social Security benefits, the equity in the house dominates all other assets. Business and financial assets account on average for just 2% and 7%, respectively, while defined contribution and defined benefit plans garner 8% and 16%, respectively.

The survey data observes that, absent a change in family structure, older individuals are unlikely to move. Homeownership rates remain virtually unchanged after age 55, and those who change homes are more likely to move into a larger house than a smaller one.

This reluctance to move, the report notes, contradicts the traditional “life-cycle” model, which says that households should draw down their accumulated assets so they have little left when they die. Because housing is a major component of accumulated assets, the model suggests that households should be reducing their spending on housing, not increasing it.

Why do retirement-age boomers stay put? The report cites a deep-seated attachment that many have to their house and neighborhood. Additionally, boomers are protected from potential rapid increases in rents they might face if they sold and entered the rental market. A third factor is that the house is treated favorably under Medicaid and other means-tested programs.

Dictating a sale in worst-case scenarios, the report says, is the pre-retiree’s declining health, as the proceeds from the sale may be needed to fund medical, assisted living or long term care expenses.

“The home needs to be part of an advisor’s financial plan,” says Soto. “People should be encouraged to put money into the house, pay off the mortgage and keep the house as a safety net should they need to [access home equity] during retirement.”