Retirees Uncertain About Tapping Home Equity But Want To Age In Place
By: Jamie Hopkins
Elder Law Associates Newsletter dated August 23, 2017
With Social Security funding issues around the corner, uncertain market conditions, long-term low interest rates and skyrocketing medical costs, American retirees are facing a laundry list of retirement challenges. The only certainty is that retirement is going to be dramatically different than the retirement previous generations encountered. In order to retire with financial security and dignity, Americans need to make well-informed decisions about when to retire, when to collect Social Security, how to manage their retirement savings and what to do about housing in retirement. It is this last item, housing in retirement, which often gets the least amount of attention, when in fact, it should be closely scrutinized as a powerful asset.
New research from The American College of Financial Services, The Home Equity and Retirement Income Planning Survey, found that the overwhelming majority, 83 percent of Americans nearing or in retirement, want to remain in their current home for as long as possible. Additionally, the desire to remain in one’s home increased with age. Perhaps somewhat surprisingly, not only did the desire to remain in one’s home increase with age, but the number of years the respondent expected to remain in the home also increased with age. Even if the homeowner needed to relocate later in retirement, almost none of the respondents expressed a desire to rent. This research has also been published in the Journal of Financial Planning - see here.
To support the retirement goal of aging in place, many Americans will need to make well-informed retirement income decisions at every turn. Retirees should at least consider the use of home equity as a potential retirement income source. For example, home sharing, sale-leasebacks, single purpose loans, home equity lines of credit (HELOCs), and reverse mortgages could all provide the income necessary to update a home or to improve a retirement income portfolio to support the goal of aging in place. However, only 44 percent of the survey’s respondents had ever considered using home equity in retirement, and only 25 percent felt comfortable using home equity as a retirement income tool.
More specifically, when it came to reverse mortgages, only 14% of the respondents had reviewed a reverse mortgage as a potential retirement income tool. Because a large number of the respondents, 39 percent, were younger than 62 and therefore too young to use a reverse mortgage, it was expected that they would be less likely to have reviewed a reverse mortgage. However, the opposite was true with nearly 18% of those under age 62 having considered a reverse mortgage, and only 13% of those between age 62 and 74 having considered a reverse mortgage. The difference does seem to indicate a growing awareness of reverse mortgages as a potential retirement income tool.
In addition to wanting to age in place for as long as possible, a number of respondents wanted their home to pass along to their children or heirs as a legacy goal. In fact, 20 percent of the respondents said it was extremely important to leave the home to their children. However, 45 percent stated that leaving the home to their children was not important. This did leave a large group of people, 35 percent, who really did not take a strong position on using their home as a legacy asset.
Although most retirees expressed the desire to age in place, less than half had really considered any strategies to leverage their home equity as a retirement income source. Since most retirees were not set on leaving the home to their heirs, they may be open to the possibilities of using home equity as a retirement income tool to support the goal of aging in place. However, only 49 percent of the respondents had a comprehensive written retirement plan in place and many of the respondents who had financial advisors, 40 percent, did not have a comprehensive written retirement plan. A good comprehensive retirement income plan should take into account where the retiree wants to live in retirement and should also discuss home equity as either an income or legacy tool, depending on the individual client’s goals, desires, and needs. Doing some homework on the potential advantages of using home equity in retirement would benefit retirees and their advisors, especially if aging in place is the desired outcome.