Home Equity: A Silver Lining for Older Homeowners, Yet a Grim Outlook for the Majority Without Homes

A vast majority of homeowners over 60 have not just formed deep attachments to their homes; they see these spaces as more than just bricks and mortar. For many, their home equity represents a critical financial safety net, underpinning their confidence in a secure retirement. With nearly 80% homeownership in this demographic, a significant number are planning to age gracefully in the comfort of their own homes, banking on a well-thought-out financial strategy for their golden years based on a research study conducted by Fannie Mae.

Confident in Their Retirement Finances

72% believe they’ll have sufficient income throughout their golden years. This confidence tends to increase with age. However, homeowners facing economic challenges show less optimism, with only 55% feeling confident about their financial readiness for retirement.

Little Interest in Tapping Into Home Equity for Retirement Income

Only 15% are open to leveraging their home’s equity for additional retirement funds, a sentiment echoed by economically disadvantaged homeowners. The primary reasons for refraining from tapping into their home’s equity were twofold: firstly, the absence of a requirement for additional funds during retirement, and secondly, a preference for owning their homes outright without any debts to the bank.

Majority Plan To Age in Place

56% intend to never sell; 27% consider selling in the future; and merely 17% have sold or plan to sell their residences. Those retirees who have sold cite various motivations, such as relocating to a more suitable home, financial benefits like lower taxes or housing costs, the desire to be nearer to family and friends, or the pursuit of a warmer climate.

Emotional Commitment to Their Home

Numerous older homeowners experience a sense of emotional and financial commitment: Their reluctance to relocate stems from a deep affection for their home, pride in having paid off debts (including mortgages), active participation in their community, and familiarity with local services.

Leave a Legacy for Their Children

A significant 62% expressed their aspiration to pass down their homes to heirs, suggesting that many consider their residences a crucial part of their legacy—an emotional and financial motivation to remain in their homes. Additionally, nearly half acknowledged that their home’s equity serves as a financial safeguard for unforeseen expenses, encompassing potential emergencies like significant healthcare costs, assisted living, or substantial home repairs, although the survey didn’t explicitly define these situations.

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Modest Interest in Loan Products for Home Improvement

Despite a general reluctance towards debt, there is a mild inclination towards utilizing loan products for home improvement. Additionally, almost half of the respondents would be open to a home-maintenance/repair service tailored for retirees at a more affordable rate. This marked the highest interest level among various programs and services surveyed, with 26% expressing interest in a home improvement loan and 48% keen on a cost-effective home-maintenance/repair service.

Open to Retirement Advice

More than a third are receptive to retirement guidance, with 38% expressing openness to receiving advice. Notably, younger homeowners exhibit a higher willingness, with 43% of those under the age of 65 being receptive, compared to 33% of those over 80 years old.

Over 60% of seniors regret not saving more for retirement in their younger years, and a notable distinction emerges between mortgage holders (68%) and outright owners (56%) in this regard.

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Concerned about Inflation, Healthcare Costs, and Assisted Living Costs

Older homeowners have voiced heightened apprehension about inflation and the financial and health challenges linked to aging. The escalating expenses of assisted living, compounded by inflation, could be influencing their inclination to age in place. Staying put allows them to exert more control over costs, leveraging their familiarity with the community and their home. With a robust grasp of current expenses, these homeowners are well-positioned to manage and potentially curtail costs as needed.

Securing Retirement Dreams with Home Equity

The Congressional Budget Office projects that the Social Security Old-Age and Survivors Insurance (OASI) trust fund will run out of funds by 2033, coinciding with the moment when individuals currently aged 58 reach the official retirement age and the youngest of today’s retirees hit 71. Consequently, all recipients will experience an automatic 25 percent reduction in benefits, irrespective of their age or financial situation.

It is not surprising that Americans feel concerned about relying on Social Security and Medicare in their old age. The paid off home will provide hope for some Americans who can tap into their home equity in the worst case scenarios.

Uncertain Future for Americans Who Don’t Own Their Homes

The Fannie Mae survey focused exclusively on homeowners. On the bright side, majority of the homeowners do not need to rely on home equity for retirement income. Unfortunately, for the vast majority of Americans who do not own a paid-off home, the future looks bleak. High inflation coupled with Social Security and Medicare trust funds running out of money, could result in a majority of Americans needing to work beyond the retirement age.