Property Tax Deferral: Can a Public/Private Partnership Help Provide Lifetime Income?

40 Pages Posted: 1 Jul 2020

See all articles by Alicia H. Munnell

Alicia H. Munnell

Boston College - Center for Retirement Research

Wenliang Hou

Boston College - Center for Retirement Research

Abigail Walters

Boston College - Center for Retirement Research

Date Written: June 24, 2020

Abstract

Many retirees will not have enough money from conventional retirement programs to maintain their standard of living once they stop working. To help support themselves, they will need to tap their home equity, the major asset for most middle-income older households. Yet tapping home equity is difficult: most people are reluctant to downsize and, even when they do, they rarely reduce their housing expenses. Reverse mortgages are an option, but most households are put off by the enormity of the decision, the complexity of the product, and the high up-front costs. A statewide property tax deferral program overcomes the hurdles to accessing home equity. Property tax deferral does not provide access to as much home equity as a reverse mortgage, but the offsetting advantage is that some of the house value after the repayment of the loan and interest will be available for a bequest. At the household level, the proposed program is revenue-neutral: all taxes owed by a participating household are paid back, with interest sufficient to cover borrowing costs and administrative expenses. But because loans are made well in advance of repayments, the sponsor of the plan must cover start-up costs. In Massachusetts, if the state government simply borrowed money to cover the annual outlays, the state’s ratio of debt-to-GSP would rise from 14.0 percent to 15.1 percent. The alternative is to involve the private sector. This decision would raise the costs to homeowners, but nevertheless it may be necessary to get a broad-based program up and running.

Keywords: Retiree, homeowner, home equity, tapping home equity, property tax, property tax deferral, property tax relief, reverse mortgage

Suggested Citation

Munnell, Alicia and Hou, Wenliang and Walters, Abigail, Property Tax Deferral: Can a Public/Private Partnership Help Provide Lifetime Income? (June 24, 2020). Wharton Pension Research Council Working Paper No. 2020-10, Available at SSRN: https://ssrn.com/abstract=3636483

Alicia Munnell (Contact Author)

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States
617-552-1762 (Phone)

Wenliang Hou

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

Abigail Walters

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

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