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Study: Home Equity Accounts for Vast Share of Retirement War Chest

When it comes time to tally up retirement assets, seniors can most likely count on the equity in their homes, a retirement account if they’re lucky enough to have one, and not much else.

That’s according to a new study from the Employee Benefit Research Institute, which took a granular look at Americans’ retirement assets across age groups and income brackets. While EBRI senior research associate Craig Copeland came to the expected conclusion that folks who take home more income tend to have more overall retirement assets, he also emphasized the impact that home equity has on the retirement outlook for Americans of all socioeconomic statuses.

Copeland starts by defining a household’s “financial assets” as stocks, bonds, cash in bank accounts, and retirement investments such as personal IRAs and employer defined contribution plans — essentially anything that can be easily turned into a retirement funding source. He then takes a look at the size of a household’s retirement investments relative to its overall amount of financial assets, using 2013 data from the Federal Reserve about households in America headed by a working person aged 25 to 64..

For instance, the median household has only 25.6% of its wealth in retirement plans, a figure that naturally creeps up in tandem with age: The median sits at zero for families headed by someone aged 25 to 34, rising to 47.1% for those with a matriarch or patriarch aged 55 to 64. 

Those numbers are also skewed by the fact that not everyone has a retirement plan to begin with: Among the entire 25-to-64 cohort, only half had any kind of IRA or employer plan, compared with 71.4% for the 55-to-64 set and 61.1% overall.

But once Copeland adds home equity to the equation, those percentages jump significantly. For the group as a whole, retirement assets plus home equity represent 78.2% of the median household’s total wealth, increasing to 87.4% for those with heads aged 55 to 64. Interestingly, those numbers also increase along with income: The median household in the third income quartile holds 90.6% of its wealth in retirement accounts and home equity.

“Home equity tends to account for the largest share of financial assets plus home equity,” Copeland concludes. “Consequently, when measuring families’ financial asset holdings at retirement, it is overwhelmingly the case that just [retirement account] assets plus home equity represent almost all of what families have for retirement outside of Social Security and defined benefit pension plans.”

Of course, Copeland’s conclusions will be familiar to those who work in the reverse mortgage and retirement planning industries, where players have increasingly been emphasizing the importance of home wealth in a world where many feel unprepared for retirement with savings and investments alone. In fact, back in February, Copeland himself co-authored EBRI’s annual Retirement Confidence Survey for 2017, which found very little change in Americans’ retirement investment readiness from its first survey from 1996. For instance, 30% of retirees said they were “very confident” in their ability to fund a comfortable retirement in 1996, as compared to 32% this year.

“We’ve been doing this survey for a long time, and we don’t really se the numbers changing all that much,” Copeland told RMD.

Written by Alex Spanko