Net Worth and Housing Equity in Retirement

This chapter documents the trends in the life-cycle profiles of net worth and housing equity between 1983 and 2004. Older households’ net worth rose significantly during the housing boom of recent years. Yet net worth grew by more than housing equity, in part because other assets also appreciated at the same time. Moreover, the younger elderly offset rising house prices by increasing their housing debt and used some of the proceeds to invest in other assets. We consider how much of their housing equity older households could actually tap using reverse mortgages. We show that this fraction is lower at younger ages, such that young retirees can consume less than half of their housing equity. Our results imply that consumable net worth is smaller than standard calculations of net worth.