Does Home Equity Liquidation Reduce the Poverty Rate of Older Adults? Evidence from South Korea

Abstract

Can we determine the poverty levels of the population aged 65 and over without considering their assets? How much can we reduce poverty rates among older adults if their assets are liquidated? To answer these questions, we investigate poverty rates among older adults relatively by taking residential property into account using an actuarial method applied to a public reverse mortgage program. We use unique data collated by merging the Survey of Household Finances and Living Conditions by Statistics Korea and data on spouse information. We find that public reverse mortgage programs increase disposable income by approximately 20% on average for the population aged 65 and over, and the improvement is more effective in the low-income quintiles. Due to the income enhancement from reverse mortgages, poverty rates among older adults reduce significantly to about 31%, while it is 41% without the liquation of home equity. Therefore, the current poverty rate among older adults following the OECD standard may overestimate the poverty rate for people aged 65 and over and misguides the direction of welfare policies, and misuses government budgets for older adults.

Keywords: Reverse mortgage, Poverty rate, Home equity

JEL Classification: G21, H53, J14