For many older Americans, their home is their biggest financial asset. But housing prices fluctuate, sometimes drastically. What do older people do when their houses lose value? A recent study by the Upjohn Institute’s Brian Asquith shows that older adults usually don’t or can’t increase work to make up for that lost wealth. Instead, they claim Social Security earlier.
Asquith finds that when housing price drops caused net wealth to fall by 5–10 percent, the likelihood of claiming Social Security rose by 8.6 percentage points. Conversely, similarly-induced gains to net wealth reduced claiming by about 4.8 percentage points. This suggests that while most homeowners do not change work patterns, substantial wealth losses prompt earlier Social Security use, potentially reducing lifetime benefits.
The study also shows that older Americans’ responses to decreased housing values vary by education level. Among homeowners with a bachelor’s degree, large housing price declines led to delayed retirement by roughly 4 percentage points. For those without a degree, there was no such effect. College-educated older adults may have greater flexibility, better health, and less physically demanding jobs, enabling them to offset losses through continued work. Less educated workers, on the other hand, whose housing assets constitute a larger share of total wealth, face fewer employment options and rely more on Social Security.
Older workers in a declining local economy may find themselves in a bind: their houses have become less valuable at the same time that jobs have become harder to find and keep.
The findings suggest that housing downturns are unlikely to boost labor force participation among older adults. However, they may increase pressure on the Social Security system by prompting earlier claims, especially among lower-wealth and less-educated households. Therefore, according to Asquith, local and federal policymakers should consider ways to:
- strengthen Social Security’s solvency,
- improve job quality and accommodations for older workers, and
- encourage growth in alternative retirement savings (such as 401(k)s, IRAs) to help workers diversify their wealth assets.
These measures could help older Americans better weather housing wealth fluctuations without sacrificing long-term financial security, as well as potentially reduce strain on the Social Security system.
Experts
