Many people feel the dream of homeownership includes that their house will be paid off when they retire. But findings from a recently released study indicate fewer people than in the past anticipate that will happen.

A new study, The Impact of the Economy on Retirement Risks, conducted by the Society of Actuaries shows that in 2009 less than half (48%) of homeowners expected to have their homes paid off by retirement compared with the substantially higher number (56%) that had the same expectation four years earlier.

The 2009 survey also found that 45% of retirees plan to sell their homes and downsize, while 20% are considering taking a home equity loan, 12% are considering a reverse mortgage and only 5% are considering a new mortgage. In the 2005 survey, only 10% of retirees reported actually using their home equity to help fund retirement.

The fact that homes are less likely to be paid off complicates planning, the report notes.

The society's study is done every two years, but the same questions are not always asked each year. Questions regarding homes and retirement may be explored in future surveys to try to document changes, because "there may well be a growing trend toward using housing equity to help finance retirement," the report says.

Whatever the future results, the statistics found so far are important because many people have more wealth in their homes then they do in 401(k) plans.

"Home assets have taken a big hit in the housing meltdown and now, for many people, even combining their 401(k) and their housing assets, they still do not have enough money to have a traditional retirement and that is definitely a problem," says Steve Vernon, a fellow in the Society of Actuaries and president of Rest-of-Life Communications, where he specializes in developing educational materials to help people prepare for retirement.

Many factors influence whether home equity should be tapped or even if attempts should be made to pay off the mortgage if it is still outstanding, experts says.

"If a retiree does not have long-term-care insurance, he may want to hold the home equity in reserve to pay for those long-term care expenses," Vernon says.

Also to be taken into account, the tax advantages of having large interest payments on the mortgage may benefit newer homeowners, says Don Redfoot, senior policy advisor with AARP's Public Policy Institute and a participant in a recent Society of Actuaries Housing in Retirement Round Table discussion. "But when you reach retirement and the tax advantages are lower and the income is lower, this may be a good time to pay the mortgage off."

However, Cheryl Krueger, a member of the Society of Actuaries and founder of Growing Fortunes Financial Partners in Schaumburg, Ill., says each person's situation is different.

"I have had clients who had to short sell their homes and then rent because they needed to save more and had to rid themselves of housing assets that were actually dragging on them," Krueger says. "I also have clients who have to go back to paying just the interest on a mortgage and, when their finances improve, they go back to paying the principal. Each person's situation drives what I advise them to do.

"We should have seen that more people were going to be going into retirement with mortgage debt, regardless of the market," she adds.
About 1,000 random participants have taken the survey since 2001.

-Karen DeMasters