For many retirees, the family home is more than just a place to live—it’s their largest asset. According to research from Vanguard published in 2023, about 80% of Americans age 60 and over are homeowners, with housing wealth accounting for approximately 48% of their median net worth. Yet, when crafting comprehensive retirement income strategies, this asset is often overlooked or reserved for use only in emergencies. It’s time for financial advisors to rethink that approach.
The traditional mindset around reverse mortgages—particularly the federally insured Home Equity Conversion Mortgage (HECM)—has been one of caution and delay. Long regarded as a tool of last resort, the reverse mortgage has often carried a stigma. However, both regulatory perspectives and academic research now paint a very different picture—one that supports the responsible use of home equity not only as a safety net but as a proactive, strategic planning tool.
The Changing Landscape: From Last Resort to First Line of Defense
FINRA, or the Financial Industry Regulatory Authority, is a self-regulatory organization focused on protecting investors and ensuring the integrity of the U.S. securities industry, including oversight of brokerage-dealer representatives. Once a proponent of using reverse mortgages only when no other options remained, FINRA now suggests that these tools deserve broader consideration in retirement planning. This evolving perspective aligns with a growing body of academic research advocating for the responsible and early use of home equity to support financial goals in retirement.
Among the leading voices in this area is Dr. Wade Pfau, Professor of Retirement Income at The American College of Financial Services. Dr. Pfau has written extensively on how incorporating a HECM line of credit early in retirement can enhance income sustainability and reduce key risks. His findings suggest that when retirees open a reverse mortgage line of credit at the outset of retirement—before it is needed—they position themselves to tap into a growing financial resource. Unlike traditional “forward” home equity credit lines, a HECM line of credit’s capacity increases over time and cannot be frozen, cut or cancelled, regardless of housing market conditions or changes in the borrower’s financial situation.
Dr. Pfau’s research highlights a critical insight: using home equity to supplement income during years when the market is down can protect investment portfolios from premature depletion. This approach, often referred to as mitigating "sequence of returns risk," helps ensure that withdrawals aren't made from a declining portfolio—one of the most damaging scenarios for retirees who rely on consistent income.
This concept isn’t theoretical. In a widely cited study published in the Journal of Financial Planning, Barry and Stephen Sacks explored the coordinated use of home equity during retirement. Their 2012 paper, “Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income,” demonstrated that retirees who strategically used a reverse mortgage in down market years significantly improved the probability of sustaining their portfolios over a 30-year retirement period. The study concluded that rather than viewing a reverse mortgage as a desperate fallback, advisors should recognize its role as a reliable and effective buffer asset.
Texas Tech University’s Personal Financial Planning program has contributed additional empirical support to these conclusions. Their simulations showed that integrating a HECM line of credit into retirement planning could substantially reduce the risk of portfolio failure. By treating home equity as a reserve asset and drawing from it during periods of poor market performance, retirees can maintain lifestyle goals while preserving their investment capital.
In Richard J. Kish’s 2022 paper entitled “Reverse Mortgage Line of Credit Investment Retirement Strategy” in the Journal of Real Estate Practice and Education, Mr. Kish notes that utilizing a HECM line of credit in lieu of portfolio withdrawals during periods of market declines substantially improves portfolio performance and cash flow availability over multiple historical periods tested, dating back to 1960. Similarly, in Mark J. Warshawsky’s and Tatevik Zohrabyan’s paper “Retire on the House: The Use of Reverse Mortgages to Enhance Retirement Security” from the MIT Center on Finance and Policy, Messrs. Warshawsky and Zohrabyan found that utilization of a HECM line of credit during significant market declines dramatically improved portfolio survival probability, particularly over longer retirement horizons, and reduces the need to maintain a large cash reserve that acts as a drag on expected returns of the portfolio.
Integrating Home Equity into a Holistic Retirement Strategy
In addition to being a key component for managing sequence of returns risk, with a HECM line of credit retirees can reduce their need to hold excess cash that earns little or no return in their overall portfolio, manage their tax exposure, control the timing of taxable distributions, and strategically fund Roth IRA conversions. Because HECM distributions are not considered taxable income, they can also be strategically used to fund a retiree’s consumption needs while staying within lower tax brackets to maintain eligibility for certain government programs or limit taxation for Medicare or Social Security, or to fund spending while allowing investment accounts to recover.
Moreover, the liquidity offered by a reverse mortgage can provide an income bridge, allowing clients to delay their initial claiming of Social Security benefits—often increasing lifetime payouts by 25% or more and maximizing Social Security as one of the key pillars for “longevity insurance.” It also offers flexibility for unexpected expenses, such as in-home care costs, home modifications to support aging in place, or other unplanned medical needs. Some clients even use this liquidity to support a “living legacy,” helping family members with education costs or housing while they’re still around to see the impact.
Additional research supports these strategies. In articles such as “Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions” and “Incorporating Home Equity into a Retirement Income Strategy,” published in the Journal of Financial Planning, researchers emphasize the value of setting up a reverse mortgage early as a contingency tool. Similarly, the Stanford Center on Longevity has encouraged integrating home equity with traditional retirement vehicles, arguing that doing so improves both income efficiency and client peace of mind.
Even Nobel Laureate Dr. Robert C. Merton has lent his credibility to this conversation. As a Professor of Finance at MIT, Merton has spoken about the underutilization of home equity in retirement planning, noting that most Americans are “overweight” in home equity but lack sufficient income-generating assets. For him, the failure to include this resource in financial planning represents a missed opportunity, both for advisors and their clients.
A Call to Action for Financial Advisors
For financial advisors committed to delivering holistic and effective retirement planning, the message is clear: home equity deserves a seat at the table. When used responsibly and strategically, a HECM line of credit can enhance financial flexibility, protect investment portfolios, manage taxes, and improve retirement outcomes.
The time has come to move beyond outdated perceptions and embrace the full picture of a retiree’s financial life. By doing so, advisors not only elevate the quality of their planning but also empower clients with more tools, more security, and more confidence in their future.