17 Questions to Ask About Home Equity in Retirement Planning

Home equity makes up a significant portion of wealth for many Americans, according to a new white paper by Principal Funds. In fact, a house accounts for about 21% of wealth for the “typical household” approaching retirement (mean of the middle 10% of the sample of households headed by an individual aged 55 to 64). That percentage of wealth is higher than wealth from a defined contribution (DC) plan assets (8%) or defined benefit plan assets (16%), according to data in the paper.

As Americans age, many rely on their homes as a sort of insurance against unforeseen events. A study released earlier this year from Barclays Global Investors (BGI) suggested that Americans felt overly prepared for retirement because of the value of their home (see Retirement Picture Bleak for Many).

With home values accounting for so much of the wealth of Americans, how will retirement planning be affected by the dramatic decrease in home values (a plunge of about $400 billion between 2007 to mid-2008, according to the paper)? The decreasing home values are already causing a drop in confidence about retirement planning for Americans of all ages, Principal says

Suggested Questions to Ask Clients

The report suggests 17 possible questions for financial professionals to gain insight into a client’s status:

• Have you estimated how much your house has depreciated within the past two years?
• If so, how much has it declined?
• How much did housing equity contribute to your retirement plans?
• How much did your housing equity contribute to your overall wealth?
• Has this housing price decline affected your planned retirement date?
• How long do you think it will take for housing prices to recover in your neighborhood?
• If so, how many more years do you plan to work?
• As a result of this decline, are you postponing any major medical treatments?
• Are you still making contributions to your 401(k) plan? Are you taking early
  withdrawals?
• Are you contemplating a reverse mortgage?
• Is it appropriate to reconsider your investment strategy in light of the decrease in
  housing wealth?
• How has this decline in your housing wealth affected your investment risk tolerance?
• Has the decrease in housing wealth affected your legacy planning?
• Do you have outside sources of health, life, or long-term heath care insurance to
  reduce the risk of incurring uninsured medical expenses?
• Are you staying informed about your client’s debt levels as part of your regular client
  reviews?
• Are you continuing to emphasize the need for long-term investment planning of an
  overall portfolio?
• What is your client’s source of retirement income? What portion, if any, of this
  income will be derived from a reverse mortgage?

The free white paper is available here.