An Alternative Asset to Buffer Sequence-of-Return Risk in Retirement

The purpose of this paper is not to repeat a discussion of sequence-of-return risk, but rather to introduce academic research suggesting ways to manage this risk via an “existing resource,” the house.

This review will lead to an evolving discussion of housing wealth used as what Wade Pfau, Ph.D., CFA, Professor of Retirement at the American College, terms an “alternative buffer asset.”

It is hoped that this introduction will spur further papers on the synergistic potential the home asset can provide in preserving TPV and net residual wealth inclusive of home equity.


To use the house as an alternative asset the researchers depend on accessing its value by establishing a Home Equity Conversion Mortgage (HECM) early in retirement.

This program is more attractive for financial planning due to changes initiated by the U.S. Department of Housing and Urban Development (HUD) to improve consumer safeguards as well as to reduce set-up costs.

Research demonstrates that delaying HECM use until portfolio ruin occurs may jeopardize a retiree’s ability to access their home equity later in retirement.

In addition, putting a HECM in place at the outset of retirement may prevent portfolio withdrawals that could subject it to dangerous sequence-of-return risk.

Finally, the growing HECM Line of Credit option (RMLOC) ensures that the housing wealth will continue to grow regardless of what the real estate market returns are over the course of retirement.


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