Open It Early. Use It Later. What the Math Says About Home Equity.

For years, the common advice was simple:

“Don’t touch the house. Save it for last.”

That sounds conservative. Responsible. Safe.

But when Retirement Researcher Wade Pfau ran the numbers in his 2016 research in the Journal of Financial Planning Incorporating Home Equity into a Retirement Income Strategy, the results told a different story.

And not in a dramatic, sales-y way, but in a math way.

Who is Wade Pfau?

Wade Pfau is a professor of retirement income. In his book, ‘The Retirement Researcher’s Guide Series: Reverse Mortgages – How to use reverse mortgages to secure your retirement,’ Pfau shares the following in the Preface: 

“As a professor of retirement income, I meant to investigate them more carefully for a long time. I suppose they did not quickly rise to the top of my to-do list because of the conventional wisdom that they are generally expensive and only worthwhile if everything else has failed. In the fall of 2014, I began to learn more about reverse mortgages and quickly found them to be a fascinating and misunderstood financial product.”

“In isolation, reverse mortgages can look expensive. One might question the motivations of researchers who argue that reverse mortgages can add value to a retirement plan. But reverse mortgages should not be viewed in isolation. We need to focus on their overall contribution and interactions with other retirement assets.” 

https://retirementresearcher.com/books/

The Baseline Is the Wake-Up Call

Pfau modeled a pretty normal retirement scenario:

• $1,000,000 investment portfolio

• $500,000 home

• 50/50 stocks and bonds

• 4% withdrawal rate

• 25% tax bracket

And what if home equity was ignored entirely?

By year 30, the probability of meeting spending goals dropped to about 40%.

Forty percent.

That means the “do nothing with the house” approach is not neutral. Instead, “do nothing with the house” materially reduces the odds of success.

He Tested Multiple Strategies

Pfau didn’t test one idea. He tested six different ways to use home equity.

Some borrowers used it early; others used it only in bad markets. 

Some used it as monthly income; others waited until the portfolio ran out.

Here’s what stood out, which just might surprise you.

The Strategy That Worked Best

The highest probability of success came from this structure:

• Open the reverse mortgage line of credit at the start of retirement

• Then don’t use it

• Let it grow

• Only tap it if or when the portfolio is depleted 

That’s it.

Open early & delay use.

Why does that work?

Because the line of credit grows over time based on interest rates. When the line of credit is opened early, it has years to compound. Especially in lower-rate environments, Pfau noted that the line was often much larger when opened early than if someone waited until later.

In other words: Just like compounding returns in the market, time helps.

Bad Markets: Where This Really Matters

The real test isn’t average returns; It’s poor returns.

Pfau looked at worst-case scenarios - the unlucky retirements where markets underperform.

In those cases, the strategy that opened the line early and delayed use provided the most downside protection.

Spending home equity early actually became the riskiest approach when markets were weak.

That’s an important finding and one that should be noted when retirement planning.

When returns are strong, lots of strategies look smart.

When returns are poor, only a few hold up.

Opening early and using it last held up best.

What About Leaving Money Behind for Heirs or Charities?

Median outcomes showed that using home equity first could produce more legacy when markets performed extremely well.

That makes sense. If investments outperform the loan growth, preserving the portfolio wins.

But planning around strong markets is easy.

Planning around weak markets is where durability matters.

And in the weaker outcomes, opening early and delaying use reduced the risk of running out of money.

Here’s the trade-off of incorporating this strategy: 

• Slightly less upside in great markets

• More protection in bad ones

Most retirees care more about avoiding failure than maximizing best-case outcomes.

The Bigger Idea

This isn’t about “using your house.”

It’s about creating optional liquidity.

Opening a line early doesn’t mean spending it. It means positioning it for when it is the most efficient use of an asset. 

It turns the home from a static asset into a flexible reserve.

Pfau’s research supports something that sounds almost counterintuitive:

Waiting until you need a reverse mortgage may actually reduce its effectiveness.

Opening it early, even if you don’t touch it for years, can improve the probability that your retirement plan survives.

That’s not hype. That’s math. And math doesn’t care about conventional wisdom.

If this feels different than what you’ve heard before, good. It should.

Most retirement plans ignore the largest asset on the balance sheet or treat it like an emergency lever. The research, from an independent source, suggests it deserves a more thoughtful role. 

If you’d like to see how this would look in your specific situation - with your numbers, your tax bracket, your timeline - let’s run it. No assumptions. No pressure. Just clarity around whether positioning a line of credit early strengthens your plan or not. Reach out and we’ll build it out together.