Forbes: Why home equity can help bolster retirement security

Home equity could be a difference-making resource that remains largely untapped for millions of Americans, according to an alternative equity-tapping company’s head of research

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

“Fewer than a quarter of U.S. 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 at all, and only 40% of those surveyed in the Federal Reserve’s 2021 Economic Well-Being of U.S. Households report felt they were on track in saving for retirement.”

At the same time, home equity has grown to very high levels based on mid-June reporting by the Wall Street Journal, which detailed that total U.S. home equity has grown to $27.8 trillion. More than $11 trillion of that total figure is accessible through a tapping instrument of some kind, O’Hara writes.

“Homeowners may be sitting on record levels of wealth — and many are considering options for tapping into their home’s value to take back control of their financial health as they approach retirement,” he says.

While a common tactic discussed by seniors for retirement planning purposes is “downsizing” into a smaller home, the tumult currently seen in the housing market may not indicate that such an approach would be the best option, O’Hara says.

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

This is where aging in place may prove to be a better option, he says. While there could be variable benefits to going with a debt-based option to tap that equity with a tool like a Home Equity Line of Credit (HELOC) or a reverse mortgage, answering the issue of retirement in America with home equity is a point that O’Hara certainly aligns with the reverse mortgage industry on.

“There is no denying that we face a retirement savings crisis in America,” he says. “Especially in times of market volatility and uncertainty, homeowners need access to resources that allow them to leverage their home equity in retirement.”

Read the column at Forbes.

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