WI20-11: Housing Wealth and Economic Security in Retirement: Does Borrowing from Home Equity Increase Adherence to Prescription Drugs?

The primary source of wealth for many older adults, particularly for those with lower incomes who rely on Social Security for their income, is equity in the home. This study investigates the use of housing wealth as a resource to increase economic security for older adults. We focus on an indicator of severe economic insecurity—taking less medication than prescribed because of cost. We investigate the relationship between housing wealth and cost-related medication nonadherence (CRN) using data from the 1998—2016 waves of the US Health and Retirement Study. Our approach accounts for the exogenous and endogenous components of housing wealth, isolating the effect of liquidating housing wealth through borrowing. This analysis makes several novel contributions. First, we find a significant short-term effect of borrowing from a mortgage on reduced CRN—an effect that is particularly large for those with a recent health shock. Second, we find that the relationship between mortgage borrowing and CRN is stronger for homeowners age 65 and older relative to those age 50 to 65, and homeowners with low levels of financial assets. Third, our simulation estimates suggest that about two-thirds of homeowners in the boomer cohorts would have sufficient home equity in 2036 to borrow $50,000 at a loan-to-value limit of 80 percent. Taken together, our findings highlight the critical role of housing wealth for the economic security of SSA beneficiaries and the use of mortgage borrowing as a vehicle to smooth consumption following a health shock.