WI21-07: Economic Security in Retirement: 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 for their income, home equity 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? We use data from the 1998 to 2016 waves of the Health and Retirement Study (HRS), including biomarker and physical health data construct indicators of a disease being adequately controlled. Health shocks are measured as the onset of diabetes, heart disease, lung disease, or cancer. We find that the level of home equity held prior to diagnosis is not associated with disease outcomes post diagnosis. Rather, it is home equity extraction that has a significant effect on disease outcomes post diagnosis. We treat home equity extraction as endogenous by exploiting intertemporal and geographic changes in house prices during our study period to construct instruments. We find that each $10,000 borrowed after diagnosis reduces the probability of the disease being uncontrolled by 33 percent. The study concludes by discussing implications for policy and the role of home equity as a resource to enable economic security for older adults.