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Do potential future health shocks keep older Americans from using their housing equity?

Murray, Tim (2019): Do potential future health shocks keep older Americans from using their housing equity?

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Abstract

It is a well-established fact that many retirees do not utilize their accumulated housing equity to help smooth and increase consumption in retirement as is predicted by the Life-Cycle Hypothesis. In this paper, I explore how older Americans may retain their housing equity to help pay off medical bills in the future, treating their house as precautionary savings. Using a counterfactual experiment, I find that older households are 13-percentage points less likely to own a home in their late retirement years when they know they will not have any out-of-pocket medical expenses. Additionally, I find that if retirees had all of their medical expenses covered by insurance, some retirees would be willing to forego homeownership, allowing them to use their housing equity to smooth and increase consumption.

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