Baby Boomers Have Wobbly Expectations for Home Equity in Retirement

For many U.S. Baby Boomers, home equity isn’t their top source for funding retirement compared to other strategies at their disposal. This lack of intended use, however, doesn’t necessarily mean these older adults are averse to tapping into their home equity to meet retirement spending needs.

Boomers’ likelihood of utilizing home equity to support themselves in retirement depends on a variety of factors, such as their need for additional cash flow, the urgency of needed funds, as well as their attitudes toward borrowing against home equity, as recent studies and surveys of this older population have indicated.

U.S. retirees have traditionally adhered to the oft-cited “three-legged stool” strategy for retirement planning: personal savings, Social Security and employer-sponsored retirement benefits.


Self-funded savings, including retirement accounts such as 401(k)s, IRAs and 403(b)s, are the most frequently cited source of retirement income expected by workers of all generations, according to the 17th Annual Transamerica Retirement Survey.

Divided by age, older workers tend to rely more heavily on other forms of funding, such as home equity and Social Security, than their younger counterparts.

Among workers of all ages, 70% said they expect to rely on Social Security as a source of retirement income. This share is much larger for Boomer workers, 87% of which expect Social Security to be a critical funding source for retirement.

Meanwhile, home equity was less often cited, accounting for just 14% of all workers and 16% of Boomers who, along with seniors born before 1946, comprised the majority of Transamerica survey respondents at 1,576 individuals.

Rather than turn to home equity as a possible funding source, Boomers are more likely to continue working past age 65 in efforts to increase their income and bolster their wobbly retirement stools. The share of Boomers expecting to work longer equaled that among all workers at 38%, compared to 36% of Generation Xers and 40% of Millennials.

“Amid retirement savings shortfalls, American workers are attempting to prop up our system’s three-legged stool by adding a fourth leg: working during retirement,” said Catherine Collinson, president of the Transamerica Center for Retirement Studies.

“Baby Boomers are the generation that has re-written societal rules at every stage of their life,” Collinson added. “Now, Baby Boomer workers are redefining retirement by planning to work until an older age than previous generations.”

The Transamerica survey did not explicitly mention reverse mortgages as falling into the broader category of “home equity.” But if other recent studies and reports from this year can serve as any indicator, retirement age Boomers largely misunderstand reverse mortgages, or don’t understand their options for unlocking home equity.

Compared to younger homeowners, Boomers are more reluctant to borrow against their home equity, according to a survey commissioned this month by Discover Financial Services (NYSE: DFS), which revealed that older Millennials ages 30-34 are twice as likely as Boomers ages 55-64 to obtain a home equity loan. Of the 64% of Millennials who own a home, the survey found that 51% have used a home equity loan, compared to only 26% of Boomer homeowners.

“Homeowners who have built equity in their homes have the opportunity to leverage their financial asset to help them pay down debt, update their home or pay for major expenses,” said T.J. Freeborn, director of operations strategy for Discover Home Equity Loans, in a press release detailing the survey findings.

The survey, which polled 1,428 consumers, also highlighted the different purposes among Millennials and Boomers for how they use their homes.

Contrary to the expectations that older homeowners may be more inclined to leverage home equity as a financial tool, Millennials were more likely to use their home as a financial asset, either by selling it to make money, or as a quarter of Millennials indicated, using their home as an investment property.

As for the main uses of home equity loans, home remodels and debt consolidation were the top objectives cited among homeowners of all ages. Additionally, older Millennials were much more likely than Boomers to use home equity loans for emergency cash, 42% vs. 14%, respectively.

Footing the bill for home improvements and paying off debts are also some of the most commonly cited uses influencing reverse mortgage take-up, though awareness of the Home Equity Conversion Mortgage product is minute relative to its potential.

These various surveys, studies and reports underscore the attitudes of older homeowners concerning home equity and the value they place on this asset for their retirement plans. While the majority of Boomers don’t expect to rely on home equity to carry the brunt of their retirement, the response shows that home equity is at least something worth considering.

Written by Jason Oliva

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  • This report surprises me in many ways, yet it does not in other ways. I feel many of the baby boomers that expressed their feelings in these surveys will change their minds as time goes on.

    One factor is that social security has seen very little increases over the past five years and none for 2016. Will this trend continue, we hope not but because of the vast borrowing from the social security fund by the Federal Government, the future may not be to bright!

    Another thing to look at is many 401-K’s and IRA’s have not done that well over the past couple of years, will that continue?

    In short, as we become more and more aware of the importance of educating society on the value of the reverse mortgage, more and more baby boomers will see its value. We used to reach out in many ways to the senior communities. We held educational workshops where ever we could, we involved municipalities departments on aging to work with us on putting on seminars and educational workshops in their communities and we did a lot more than the few items I mentioned.

    We need to start to go back to many of the basics that made us successful. I am sure many of us are realizing this and doing just that. We need to keep it going and Tom Selleck has sure been an ally of ours lately!

    John Smaldone

  • In perhaps one of the most worst analysis of home equity debt in print, T. J. declares: “Homeowners who have built equity in their homes have the opportunity to leverage their financial asset to help them pay down debt, update their home or pay for major expenses.”

    I wonder what T. J. thinks leveraging is. In simple English, if one uses debt proceeds to pay off a debt, what is left? One debt is gone and another is either larger or was created as part of the payoff.

    The article goes on to say: “Additionally, older Millennials were much more likely than Boomers to use home equity loans for emergency cash, 42% vs. 14%, respectively.” But guess what unless they are married to a Boomer or someone older, the oldest millennials will NOT be eligible for a HECM for a little over 27 years. Millennials are those born between 1982 through 2004, inclusively. In 27 years a substantial percentage of the oldest Baby Boomers will have already met their Maker.

    We need to stop using home equity as often as we do. Doing this so often leads to statements like the one above: “Homeowners who have built equity in their homes have the opportunity to leverage their financial asset to help them pay down debt…” Unless a lender is allowing the borrower to pay off more than a $1 of debt for $1 in cash, when you leverage to payoff a debt, total debt either stays the same or increases by any upfront costs which are financed as part of the leveraging.

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