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Net worth and housing equity in retirement

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  • Todd Sinai
  • Nicholas Souleles

Abstract

This paper documents the trends in the life-cycle profiles of net worth and housing equity between 1983 and 2004. The net worth of older households significantly increased during the housing boom of recent years. However, 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. The authors also consider how much of their housing equity older households can actually tap, using reverse mortgages. This fraction is lower at younger ages, such that young retirees can consume less than half of their housing equity. These results imply that ‘consumable’ net worth is smaller than standard calculations of net worth.

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File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers//2007/wp07-33.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 07-33.

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Date of creation: 2007
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Handle: RePEc:fip:fedpwp:07-33

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Keywords: Retirement ; Housing;

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References

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  1. Todd Sinai & Nicholas S. Souleles, 2003. "Owner-Occupied Housing as a Hedge Against Rent Risk," NBER Working Papers 9462, National Bureau of Economic Research, Inc.
  2. B. Douglas Bernheim & Lorenzo Forni & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2000. "How much should Americans be saving for retirement?," Working Paper, Federal Reserve Bank of Cleveland 0002, Federal Reserve Bank of Cleveland.
  3. Venti, Steven F. & Wise, David A., 1991. "Aging and the income value of housing wealth," Journal of Public Economics, Elsevier, Elsevier, vol. 44(3), pages 371-397, April.
  4. Sally R. Merrill & Meryl Finkel & Nandinee K. Kutty, 1994. "Potential Beneficiaries from Reverse Mortgage Products for Elderly Homeowners: An Analysis of American Housing Survey Data," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 22(2), pages 257-299.
  5. David A. Wise, 2004. "Perspectives on the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number wise04-1.
  6. David A. Wise, 2004. "Introduction to "Perspectives on the Economics of Aging"," NBER Chapters, National Bureau of Economic Research, Inc, in: Perspectives on the Economics of Aging, pages 1-16 National Bureau of Economic Research, Inc.
  7. Jonathan Skinner, 2007. "Are You Sure You're Saving Enough for Retirement?," NBER Working Papers 12981, National Bureau of Economic Research, Inc.
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Cited by:
  1. James M. Poterba & Steven F. Venti & David A. Wise, 2010. "Demographic Trends, Housing Equity, and the Financial Security of Future Retirees," NBER Chapters, National Bureau of Economic Research, Inc, in: Demography and the Economy, pages 227-287 National Bureau of Economic Research, Inc.
  2. Alicia H. Munnell & Mauricio Soto, 2008. "The Housing Bubble and Retirement Security," Working Papers, Center for Retirement Research at Boston College, Center for Retirement Research wp2008-13, Center for Retirement Research, revised Aug 2008.
  3. Motohiro Yogo, 2009. "Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets," NBER Working Papers 15307, National Bureau of Economic Research, Inc.
  4. Hui Shan, 2009. "Reversing the trend: the recent expansion of the reverse mortgage market," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2009-42, Board of Governors of the Federal Reserve System (U.S.).
  5. Bottazzi, Renata & Jappelli, Tullio & Padula, Mario, 2009. "The Portfolio Effect of Pension Reforms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7380, C.E.P.R. Discussion Papers.

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