(Federal Trade Commission)
With the housing market beginning to recover, tapping into home
equity may once again become a larger part of retirement planning. The article in the link above contains a good explanation of
reverse mortgages from the Federal Trade Commission.
My original March 2010 article describing the general actuarial
process for developing a spending budget (which is the foundation for this
entire website) indicated that accumulated assets to be input into
the provided spreadsheet generally would not include home equity.
That opinion was the conservative actuary in me talking. I have
recently revised the original language as follows:
If you believe that you will eventually have access to some of your home
equity (as a result of downsizing to a smaller, less expensive home or
apartment, or through a reverse mortgage that will pay you a lump sum or monthly
payment while allowing you to remain in your home) and you want to factor the
value of this future action in your spending plan, you can include an estimate
of the present value of the net equity you expect to receive in the amount of
accumulated savings you input in the spreadsheet. Note that doing so is less
conservative than not anticipating such action and could leave you more
vulnerable to future financial surprises, such as unanticipated medical or
nursing home costs.