Forbes: Why Home Equity Can Help Boost Retirement Security

As retirement savings continues to maintain its unusually low position on the priority list for many Americans squeezed by the current economic turmoil, the oft-discussed potential retirement crisis may be more visible according to three separate data points cited by Matthew O’Hara, head of portfolio management and research at alternative equity operating firm Unison in a column to Forbes.

“Less than a quarter of American workers surveyed feel very confident in their ability to retire comfortably at some point, according to the Transamerica Center for Retirement Studies,” O’Hara writes. “Among non-retirees, about the same number (25%) reported having no retirement savings, and only 40% of those surveyed in the Federal Reserve’s 2021 report on the economic well-being of American households have felt they were on the right track to save for retirement.”

At the same time, home equity has reached very high levels according to the mid-June report of the the wall street journal, which details that total home equity in the United States has risen to $27.8 trillion. More than $11 trillion of that total figure is accessible through some tapping instrument, O’Hara writes.

“Homeowners may be sitting on record levels of wealth – and many are considering options to tap into the value of their home to regain control of their financial health as they approach retirement,” he says.

Although a common tactic discussed by seniors for retirement planning purposes is to “downsize” into a smaller home, the current turmoil in the housing market may not indicate that such approach would be the best option, says O’Hara.

“[U]In the current economic circumstances where home prices remain high, rates are rising and inflation is high, downsizing may not yield the financial return these homeowners are looking for,” he says. “In some cases, homeowners are finding that the asking prices for tiny homes in the desired area are comparable or equivalent to the proceeds they would get from selling their existing property, which significantly diminishes the value of downsizing. Selling a home can also trigger capital gains taxes, and even in the best-case scenario, moving is a hassle.

This is where aging in place may prove to be a better option, he says. While there can be varying benefits to opting for a debt-based option to leverage that net worth with a tool like a home equity line of credit (HELOC) or reverse mortgage, answering the retirement question in America with home equity is a point that O’Hara certainly aligns with the reverse mortgage industry.

“There’s no denying that we’re facing a retirement savings crisis in America,” he says. “Particularly in times of market volatility and uncertainty, homeowners need access to resources that enable them to leverage their home equity in retirement.”

Read the Forbes column.

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