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.”