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

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 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 person’s standard of living. However, a mortgage that is not paid
off creates a greater mandatory expense that may threaten the ability of Social Security benefits
to replace income devoted to consumption in retirement.
Additionally, home equity can be used to finance consumption in retirement, be it
general, or targeted – such as for emergent health-related expenses or a financial emergency.
While recent trends in housing asset appreciation appear to be improving the financial well-being
of older Americans, without also understanding the level and use of housing debt, it is difficult to
know whether retired homeowners are financially more secure.
Using the Health and Retirement Study (HRS) panel data from 1992-2016, this paper
addresses three related topics. First, it updates information on how household mortgage-related
debt evolved for various HRS cohorts. Second, it explores how homeowners have used home
debt near, and in, retirement. Third, it considers whether there are important public policy
lessons on the role of using home-related debt for achieving a financially secure retirement.