Analysis Shows How Using Home Equity Can Help in Retirement

Americans' reluctance to use home equity to fund retirement could result in more not being able to maintain their standard of living in retirement, according to a new report.
The latest analysis of the National Retirement Risk Index (NRRI), released by the Center for Retirement Research at Boston College and underwritten by Nationwide Mutual Insurance Company, examines how not taking full advantage of housing equity affects the share of U.S. households “at risk.” The result is a 10-percentage-point rise in the index, a finding that 61% of households would not be able to maintain their standard of living in retirement.

The NRRI uses very conservative assumptions in its baseline scenario, including that consumers access their home equity through a reverse mortgage and invest the proceeds in an inflation-indexed annuity to help generate retirement income. The CRR said it performed its analysis realizing that very few people actually do that.

The analysis found the effect of not using home equity is greater than the effect the recession had on the Index, which caused a 7-percentage-point rise in the Index (see “Index Finds More not Prepared for Retirement”).

The CRR’s findings are here.