Most boomers approaching retirement do not plan to access their home equity, but rather intend to hold on to their house as insurance against unplanned living or health expenses or to leave as a bequest. The minority of boomers who do intend to tap their home equity are also likely to be inadequately prepared for retirement.

These are among the key findings of a new survey from the Center for Retirement Research at Boston College, Boston. Mass. Titled “Do People Plan to Tap Their Home Equity in Retirement?” the report also finds that the characteristics of those who say “yes” to tapping home equity suggest that more retirees will do so in the future.

“Going forward, people will have less adequate savings for retirement than the current cohort of retirees,” says Mauricio Soto, a research economist at CRR. “These people will be in much the same situation as those who today are tapping into home equity to meet post-retirement expenses.”

To determine whether boomers who will retire in the next 10 years plan to use their home equity in ways different than current retirees, CRR contracted with Rochester, N.Y.-based Harris Interactive in February 2007 to do a survey to examine the house as a potential source of retirement income.

Of the 2,673 individuals age 50 to 65 interviewed for the survey, nearly 75% said they are not planning use home equity to finance ordinary living expenses in retirement. Most of the rest were unsure.

The results also indicated that expecting an inadequate retirement income increases the probability of using home equity to close the gap. Having a mortgage also increases the chances, the report suggests, because households might be more comfortable with financial instruments and less attached to the home equity than those who enter retirement mortgage-free.

The survey also finds that boomers who are covered by a defined benefit plan are less likely to tap home equity during retirement, whereas those who have a defined contribution plan are more likely to do so. The report suggests that pre-retirees perceive a defined contribution plan as a less reliable source of retirement income than a defined benefit plan.

“Today, 43% of the working population is at risk of not having a sufficient income to maintain their pre-retirement standard of living,” says Soto. “This percentage is up substantially from 15 years ago, when the percentage was in the low 30s. People who retire in another 15 years will see a reduction in income and benefits.”

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.”