A recent Wall Street Journal consumer finance column addresses the issue of using home equity for retirement.
The column, “Tapping Home Equity In Retirement,” begins by noting that while most people would prefer not to use home equity for retirement, “given the state of retirement savings in the U.S., they may not have a choice.”
The column cites data from a recent Society of Actuaries report finding that “People, in general, look at their house as an anchoring point,” and, “There’s a resistance to leaving a house and considering alternative ways of using their home equity.”
Among the ways people plan to use their home equity are reverse mortgages. While selling a home or downsizing and home equity loans are the more popular options, 12% of retirees and 9% of pre-retirees who plan to use their equity in retirement said they’d do so via a reverse mortgage, according to the Society of Actuaries report.
Barbara Stucki, vice president for home-equity initiatives at the National Council on Aging, is quoted in the article as saying, “I absolutely believe with a shift from defined-benefit plans to the 401(k)s…people aren’t saving enough.”
“It’s not a question of ‘if’; it’s more a question of ‘when’ and ‘how,'” Stucki told the WSJ.
The article also covers the recent lawsuit filed by AARP against the Department of Housing and Urban Development. “The lawsuit focuses on rules regarding the rights of surviving spouses when the reverse-mortgage borrower dies, if that surviving spouse isn’t on the home’s title. The suit’s outcome will determine whether surviving spouses who are in that situation are required to repay the full loan balance in order to remain in the home—even if the balance is higher than the home’s current value,” the article says.
“I suspect these situations are very rare,” Stucki said.
Overall strategy is advised, ultimately.
“What this tells people to think about is not just the front end, how much it costs. You also need to be thinking about an end strategy,” Stucki told WSJ.
Read the WSJ article.
Written by Elizabeth Ecker