Role of home equity in retirement saving: building your nest (egg)

Author (Your Name)

Caroline Theoharides, Colby College

Date of Award

2006

Document Type

Honors Thesis (Open Access)

Department

Colby College. Economics Dept.

Advisor(s)

Michael R. Donihue

Second Advisor

David Findlay

Third Advisor

Philip Brown

Abstract

This study examines the role of home equity in retirement saving. Using data from the 2001 and 2003 Panel Study of Income Dynamics, this study first updates the existing literature by regressing active saving on real housing capital gains using median regression techniques. Consistent with the literature, an increase in housing capital gains results in a decrease in active saving. While the active saving literature provides an initial analytical framework regarding saving behavior and home equity, the demographic shift in the U.S. due to the imminent retirement of the baby boomers indicates that the impact of changes in home equity on retirement saving is the more imperative question confronting policy makers. To determine this basic relationship, a level of retirement saving is regressed on home equity, yielding a positive relationship. Alternatively, when retirement saving is regressed on home equity as a share of the total retirement portfolio, the resulting relationship is negative, demonstrating that when households place more emphasis on the home in their retirement portfolio, they reduce the level of other retirement saving.

Keywords

Retirement income -- United States -- Planning, Home ownership -- United States, Finance, Personal -- United States

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