As the United States continues to endure a retirement crisis that has only been exacerbated by the COVID-19 coronavirus pandemic, the home is an asset with continuously understated potential to assist with cash flow for retirees. This is especially true considering that the home is likely to be the largest asset that the majority of homeowners have access to, and which emphasizes that home equity should be playing a larger role in retirement than it currently does.
This is according to Rayan Rafay, an alternative equity tapping executive in a “council” post at Forbes.
“It is estimated to maintain your standard of living and cover other items like health care, you will need 80% of your pre-retirement household income in retirement,” Rafay writes, citing data from the Pension Rights Center. “Assuming a retirement age of 65 and looking at the median income in the decade before, this equates to approximately $55,000 a year. Given the current median income in a post-retirement household of $43,696, this is a deficit of approximately $11,000 per year. This deficit can grow larger as Americans age.”
This is where the home can come into play. Seniors have an estimated homeownership rate of 80% according to the U.S. Census Bureau, which means that many American retirees have that kind of asset that they can utilize if they choose to, and as many as 37% of all homes in the United States are mortgage-free according to 2017 data from Zillow.
While a reverse mortgage is described by Rafay as a more “traditional” avenue to access a home’s equity, the column repeats a contention often made by the reverse mortgage industry itself: it’s a product with significant potential for those in a particular situation, but isn’t necessarily for everyone.
“Historically, there have been difficulties in accessing home equity without monthly payments. The primary option, a reverse mortgage, is limited in terms of home price and a borrower’s age affecting its ability to solve the problem for all homeowning retirees,” he writes. “There are newer options that make home equity liquid to a much larger swathe of retirees, including home equity sharing and appreciation mortgages.”
The fact that the home is under-utilized in answering the needs of the growing senior population only further emphasizes that there should be a broader conversation concerning how this asset can be responsibly employed to help those in retirement, he writes.
“Utilizing housing to fund gaps in retirement income is not only attractive in that it’s a solution to the retirement crisis without the use of government support, but it also takes otherwise dormant assets and puts this money into the economy,” Rafay writes. “This can help increase commerce and grow the economy.”
Read the column at Forbes.