Net Worth and Housing Equity in Retirement
This paper documents the trends in the life-cycle profiles of net worth and housing equity between 1983 and 2004. The net worth of older households significantly increased during the housing boom of recent years. However, net worth grew by more than housing equity, in part because other assets also appreciated at the same time. Moreover, the younger elderly offset rising house prices by increasing their housing debt, and used some of the proceeds to invest in other assets. We also consider how much of their housing equity older households can actually tap, using reverse mortgages. This fraction is lower at younger ages, such that young retirees can consume less than half of their housing equity. These results imply that 'consumable' net worth is smaller than standard calculations of net worth.
This paper was prepared for the Pension Research Council conference on April 23, 2007. We are grateful for funding in part by the Zell-Lurie Real Estate Center at Wharton. Igar Fuki provided outstanding research assistance. We thank John Ameriks, Julia Coronado, and Olivia Mitchell for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Recalibrating Retirement Spending and Saving John Ameriks and Olivia S. Mitchell Print publication date: 2008 Print ISBN-13: 9780199549108 Published to Oxford Scholarship Online: January 2009 DOI: 10.1093/acprof:oso/9780199549108.001.0001