The use of home equity to fund the consumption needs of retirees: a selective review of literature on issues and potential risks

This paper identifies the broad issues associated with the use of home equity to fund the consumption needs of retirees by reviewing the relevant international literature.The specific literature that examines the role of home equity in the retirement income system deals with attempts by government to shift a greater share of latelife costs onto households. An important part of this literature examines the broad economic consequences of shifting away from a public retirement income system, which features, for example, a partially funded age pension. Other relevant literature considers the decisions older households make about the use of their home equity and other financial assets to fund their consumption needs in retirement. This paper’s review highlights important issues that must be considered in a policy change directed toward increasing the use of housing assets to fund consumption needs in retirement. These include the need to obtain a clear picture of the capacity of households to achieve meaningful improvements in their retirement income by accessing their housing, acknowledging the preference of elderly households to hold onto their home equity rather than draw down on it, and accounting for the risks and costs of encouraging households to access their home equity to fund their general consumption needs in retirement.