Advanced Search
MyIDEAS: Login to save this paper or follow this series

Home equity withdrawal in retirement

Contents:

Author Info

  • Makoto Nakajima
  • Irina A. Telyukova

Abstract

The authors study empirically and theoretically the patterns of home equity withdrawal among retirees, using a model in which retirees are able to own or rent a home, save, and borrow against home equity, in the face of idiosyncratic risks concerning mortality, health, medical expenditures, and household size and observed house price changes. The estimated model is found to successfully replicate the patterns of homeownership and the saving/borrowing decisions of retirees. They use the estimated model for several counterfactual experiments. There are three main findings. First, the model predicts that a house price boom suppresses homeownership and increases borrowing, while a decline in house prices has the opposite effect. Second, the costs of home equity borrowing restrict the borrowing of retirees, and thus a reduction of such costs (e.g., lower costs of reverse mortgage loans) might significantly raise home equity borrowing. Third, there are two implications for the retirement saving puzzle. Although the cost of borrowing against equity in the house affects the borrowing of retirees, it does not affect total asset holding, implying that equity borrowing costs do not seem to offer a quantitatively significant contribution to resolving the retirement saving puzzle. On the other hand, the magnitude of the retirement saving puzzle might be exaggerated, because a sizable part of "retirement saving" is due to house price appreciation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/2011/wp11-15.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 11-15.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:fip:fedpwp:11-15

Contact details of provider:
Postal: 10 Independence Mall, Philadelphia, PA 19106-1574
Web page: http://www.philadelphiafed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.phil.frb.org/econ/wps/index.html

Related research

Keywords: Home equity loans ; Retirement;

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Karen A. Kopecky & Tatyana Koreshkova, 2010. "The impact of medical and nursing home expenses and social insurance," Working Paper, Federal Reserve Bank of Atlanta 2010-19, Federal Reserve Bank of Atlanta.
  2. Ortalo-Magné, François & Rady, Sven, 2005. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraint," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 50, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 118(1), pages 39-75, 02.
  4. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, Econometric Society, vol. 70(1), pages 47-89, January.
  5. Karen Kopecky & Tatyana Koreshkova, 2009. "The Impact of Medical and Nursing Home Expenses and Social Insurance Policies on Savings and Inequality," Working Papers, Concordia University, Department of Economics 09006, Concordia University, Department of Economics.
  6. Motohiro Yogo, 2008. "Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets," 2008 Meeting Papers, Society for Economic Dynamics 63, Society for Economic Dynamics.
  7. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, 08.
  8. Steven F. Venti & David A. Wise, 2004. "Aging and Housing Equity: Another Look," NBER Chapters, National Bureau of Economic Research, Inc, in: Perspectives on the Economics of Aging, pages 127-180 National Bureau of Economic Research, Inc.
  9. Chen, Kaiji, 2009. "A Life-Cycle Analysis of Social Security with Housing," MPRA Paper 15509, University Library of Munich, Germany.
  10. Morris Davis & Jonathan Heathcote, 2004. "Housing and the business cycle," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-11, Board of Governors of the Federal Reserve System (U.S.).
  11. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
  12. David Love & Michael Palumbo & Paul Smith, 2008. "The Trajectory of Wealth in Retirement," Department of Economics Working Papers, Department of Economics, Williams College 2008-10, Department of Economics, Williams College.
  13. 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.
  14. Mariacristina Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71, pages 743-768, 07.
  15. 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.
  16. Makoto Nakajima, 2010. "Optimal capital income taxation with housing," Working Papers, Federal Reserve Bank of Philadelphia 10-11, Federal Reserve Bank of Philadelphia.
  17. Antonia Díaz & María José Luengo-Prado, 2010. "The Wealth Distribution With Durable Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 143-170, 02.
  18. Fang Yang, 2009. "Consumption over the Life Cycle: How Different is Housing?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 423-443, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Pijoan-Mas, Josep & Ríos-Rull, José-Víctor, 2012. "Heterogeneity in Expected Longevities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9123, C.E.P.R. Discussion Papers.
  2. James Poterba & Steven Venti & David Wise, 2011. "The Composition and Drawdown of Wealth in Retirement," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 25(4), pages 95-118, Fall.
  3. Yanbin Chen & Fangxing Li & Zhesheng Qiu, 2013. "Housing and Saving with Finance Imperfection," Annals of Economics and Finance, Society for AEF, Society for AEF, vol. 14(1), pages 207-248, May.
  4. Makoto Nakajima, 2012. "Everything you always wanted to know about reverse mortgages but were afraid to ask," Business Review, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Philadelphia, issue Q1, pages 19-31.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:11-15. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.