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Net worth and housing equity in retirement

  • Todd Sinai
  • Nicholas Souleles

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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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
Date of revision:
Handle: RePEc:fip:fedpwp:07-33
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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. David A. Wise, 2004. "Introduction to "Perspectives on the Economics of Aging"," NBER Chapters, in: Perspectives on the Economics of Aging, pages 1-16 National Bureau of Economic Research, Inc.
  3. Jonathan Skinner, 2007. "Are You Sure You're Saving Enough for Retirement?," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 59-80, Summer.
  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, 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, number wise04-1.
  6. Venti, Steven F. & Wise, David A., 1991. "Aging and the income value of housing wealth," Journal of Public Economics, Elsevier, vol. 44(3), pages 371-397, April.
  7. B. Douglas Bernheim & Lorenzo Forni & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2000. "How much should Americans be saving for retirement?," Working Paper 0002, Federal Reserve Bank of Cleveland.
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