A study focused on retirement planning risks found that about two out of 10 retirees and pre-retirees have already used or plan to use equity in their homes to help finance retirement.
According to the 2009 survey and accompanying report by Schaumberg, Ill.-based Society of Actuaries, those who do generally plan to tap into their home equity by selling their home (45% of retirees, 56% of pre-retirees). They are less likely to access this equity through a home equity loan (20% of retirees, 9% of pre-retirees), a reverse mortgage (12% of retirees, 9% of pre-retirees), or a new mortgage (5% of retirees, 0% of pre-retirees).
“Except for outright sale of their homes and downsizing, options for the use of such equity to help finance retirement is not part of the plan for most retirees. Reverse mortgages and other similar means of accessing home equity do not yet appear to have achieved much acceptance,” the report states.
Among other concerns highlighted by the study, just 72% of pre-retirees and 55% of people who are retired are accounting for inflation in their retirement planning, when compared with other planning activities, according to a recent report.
Ultimately, the survey indicates a need for people to better manage risk as it relates to retirement planning. Other findings show that many individuals, or more than 80%, do not look more than 20 years ahead when making important financial decisions and only 5% look to or beyond their life expectancy.
“By not having a set plan for how they spend savings, these individuals are exposing themselves to more risks down the road, such as outliving their assets or not having funds to manage unexpected long-term care costs,” said actuary Steve Vernon, FSA, MAAA. “Individuals always need to take inflation into consideration and now is the time to take action to address these inflation and longevity concerns by planning for multiple scenarios.”
On the flip side, the study found the majority of retirees are managing savings and spending including 68% of retirees who create a plan to manage their money each year to prevent them from outliving their finances. Additionally, 73% of retirees consider allocating their investments and savings to different types of assets. Only 24% of retirees, however, have purchased or plan to buy a product with guaranteed income for life.
See the full study findings.
Written by Elizabeth Ecker