As retirement looms, individuals must transition from an accumulation and asset-centric mindset to one focused on income and reliable cash flow. This shift from savings to decumulation is often discussed mostly in terms of 401(k)s and IRAs, but it really applies across asset classes and account types – including one’s primary residence. For many Americans, their home will represent not only their largest asset in retirement but also their largest expense. According to a 2023 report by Pew Research Center, the typical homeowner had roughly $174,000 in home equity and retirement accounts valued around $76,000. Despite being retirees’ largest asset, it also remains their largest expense, totaling 35% of retirement expenses at about $18,000 a year. Furthermore, a Harvard study revealed that more people are retiring now with a mortgage than ever before, adding to the significance of this issue.
In this shift, home equity emerges as a potent yet often overlooked resource for ensuring financial stability during retirement but also represents itself as a critical retirement cash outflow to be managed. Recent research conducted by WSFS Mortgage and released in March 2024 sheds light on the potential of reverse mortgages as a tool to tap into this home equity to generate retirement income or as a way to turn off that cash outflow facing so many retirees with an existing traditional mortgage payment. The WSFS research also highlighted the need for greater education on reverse mortgages and understanding the strategic uses of home equity in retirement. This article explores the findings of the study and offers insights into leveraging home equity for sustainable retirement income.
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