WI20-10: Home Ownership and Housing Debt in Retirement: Financial Asset for Consumption Smoothing or Albatross Around the Neck of Retirees?

Abstract

For many retirees, the home is their most valuable asset. A house is both used as an investment and for consumption. If a home is paid for at the time when a person retires, they no longer have to service a mortgage or pay monthly rent, thus freeing up retirement income for other purposes. In this case a large portion of income from Social Security can be devoted to consumption, benefiting the household’s standard of living in retirement. However, if a mortgage is not paid off that creates a greater amount of mandatory expense that may threaten the ability of the value of Social Security benefits to replace income devoted to consumption in retirement. Homeownership rates are also important in this regard. Homeowners benefit from living in their homes in retirement, forgoing rent payments. Additionally, any equity in a home can be used to finance consumption in retirement, be it general, or targeted –such as for emergent health related expenses. While recent trends in housing asset appreciation would appear to be improving the financial well-being of older Americans, without also understanding the level and use of housing debt, it is impossible to know whether retirees are wealthier, or better-off. The research will use the Health and Retirement Study (HRS) panel data from 1992–2016 to specifically investigate housing debt and conduct a deep dive into how the changing nature of housing debt in retirement impacts retirement security.