WI21-07: Economic Security in Retirement: How Does Borrowing from Home Equity After a Health Shock Affect Health Outcomes?



The onset of a costly disease in retirement can present a significant threat to economic security. Older adults often self-insure against these risks by accumulating wealth, including home equity. For many older adults, particularly those who rely on Social Security as the primary source of their income, equity in the home is their primary component of wealth. In this study, we ask: To what extent does home equity mitigate the economic hardship created by a health shock, ultimately leading to better health outcomes? How does mortgage debt held by older adults affect this relationship? Using survey, biomarker, and physical health data from the Health and Retirement Study from 1998 through 2016, we first estimate the extent to which home equity enables households to better manage a costly health condition and how this varies for households constrained by mortgage debt prior to a health shock. Second, we model the extraction of home equity through mortgage borrowing and home sale as separate endogenous choices, identifying their respective effects on health outcomes after the onset of a disease. Understanding these relationships is critical given changing trends in mortgage debt among adults entering retirement and uncertainty about how these trends will impact the economic security of SSA Beneficiaries.


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