Your Biggest Retirement Asset Is Probably the One You're Not Using

Here's a number that stops most people cold. According to the Federal Reserve's Survey of Consumer Finances, homeowners over age 65 hold the majority of their net worth in home equity, not in IRAs, not in brokerage accounts, not in pensions. The house is the asset.

And yet, most retirement income plans treat the house as completely off the table. You're supposed to live there. You're not supposed to touch it. That thinking costs a lot of retirees real flexibility.

This post is about one specific angle: using a HECM reverse mortgage as a deliberate piece of a retirement income strategy, not as a last resort, but as a proactive tool. There's a real difference between those two approaches, and understanding that difference changes how you think about the whole conversation.

What a HECM Actually Is (In Plain Language)

HECM stands for Home Equity Conversion Mortgage. It's the FHA-insured version of a reverse mortgage, which means it carries federal consumer protections that proprietary products don't always offer. It's also the most common reverse mortgage product in the U.S. by a wide margin.

The core mechanic is straightforward. Instead of you making payments to a lender, the lender makes funds available to you. The loan balance grows over time as interest accrues. The loan becomes due when you sell the home, move out permanently, or pass away. Your heirs can pay off the balance and keep the home, or sell it and keep whatever equity remains. The FHA insurance guarantees they will never owe more than the home is worth, even if the balance exceeds the sale price.

To qualify, you need to be at least 62 years old, own the home as your primary residence, have sufficient equity, and stay current on property taxes, homeowners insurance, and basic maintenance. A HECM counseling session with an HUD-approved counselor is required before the loan closes. That's not a hurdle. It's actually one of the most useful hours you'll spend in this process.

Why "Last Resort" Is the Wrong Mental Frame

For a long time, financial advisors steered clients away from reverse mortgages. The reputation was that they were for desperate seniors who had run out of options. That perception has shifted significantly over the past decade, and for good reason.

Research from academics including Dr. Wade Pfau, a well-known retirement income researcher, has argued that opening a HECM line of credit early in retirement (while home values are strong and interest rates are manageable) can meaningfully reduce the risk of depleting investment portfolios. The idea is that you don't have to draw from the reverse mortgage constantly. You open it, let it grow, and tap it strategically.

That's a very different conversation than "I need money and I have no other choice."

The families I work with in Westlake, Lakeway, and the hill country communities west of Austin often have substantial home equity. A lot of them are also carrying the weight of low-rate investment accounts, required minimum distributions creating tax drag, and Social Security timing decisions that affect everything else. Adding a HECM to that conversation isn't desperation. It's diversification of income sources.

Three Practical Ways Retirees Use HECM Equity Strategically

1. The Portfolio Preservation Play

Imagine a retired couple in Cedar Park. Their home is worth $680,000. They have $420,000 in an IRA. They're drawing about $2,800 a month from that IRA to cover living expenses beyond Social Security.

In a down market year, pulling $2,800 a month from a portfolio that's also declining in value accelerates the depletion. This is called sequence-of-returns risk, and it's one of the biggest threats to a retirement plan that looks fine on paper.

With a HECM line of credit established, they could pause IRA withdrawals during a bad market year and draw from the reverse mortgage instead. The IRA stops selling shares at depressed prices. The portfolio gets time to recover. The HECM balance grows, but so does the value of the home over time in most scenarios.

This isn't a magic trick. It's a buffer. And buffers matter enormously in long retirements.

2. Delaying Social Security

Every year you delay claiming Social Security past your full retirement age, your benefit grows by roughly 8 percent, up to age 70. That's a guaranteed return you can't get anywhere else.

But a lot of people claim early because they need the income now. A HECM can bridge that gap. Draw from home equity for a few years, delay Social Security until 70, and lock in a permanently higher monthly benefit for the rest of your life and potentially your spouse's life too.

For a Lakeway homeowner with substantial equity, using the home to fund a two or three year Social Security delay can be one of the most financially sound moves available. You're trading depletable home equity for a guaranteed income stream that lasts as long as you live.

3. Managing Tax Brackets in Early Retirement

This one surprises people. HECM proceeds are not considered taxable income. You're borrowing against an asset you own. That means drawing from a reverse mortgage doesn't push you into a higher tax bracket, doesn't affect Medicare premium thresholds (IRMAA), and doesn't increase the taxable portion of your Social Security benefits.

For retirees doing careful Roth conversion planning in the early years of retirement, keeping income low is valuable. A HECM can supplement spending without creating the tax events that IRA withdrawals or investment sales would trigger.

Your CPA and your loan officer need to be in the same conversation for this to work well. But the tax treatment of HECM proceeds is a real and underappreciated advantage.

What the Numbers Actually Look Like

The amount you can access through a HECM depends on three main factors: your age (older borrowers qualify for more), your home's appraised value up to the FHA lending limit, and current interest rates.

FHA sets a maximum claim amount that gets updated periodically. For 2026, that limit is $1,209,750. Homes above that value can still use a HECM, but the calculation is capped at the limit. Borrowers with higher-value homes in the $1.5M to $3M range might also look at proprietary jumbo reverse mortgage products, which don't carry the FHA limit but also don't have the same federal insurance protections.

If you want to model what a HECM might look like for your specific situation, including how much you might qualify for and how different payout options compare, the MyLola Scenario Builder is a good place to start building that picture before you sit down with a loan officer.

What to Watch Out For

A HECM isn't right for every situation. Here are the cases where I'd pump the brakes:

  • You plan to move within the next two to three years. Closing costs on a HECM aren't trivial, and if you're selling the home soon, you won't get enough benefit from the loan to justify those costs.
  • You have heirs who are counting on the home as inheritance and you haven't had a candid conversation with them. Surprise is the enemy here. Get the family aligned.
  • Your equity position is thin. If you have less than 50 percent equity, a HECM may not leave you with enough useful access to justify it.
  • You're behind on property taxes or struggling to maintain the home. A HECM requires you to stay current on taxes, insurance, and maintenance. Failing to do so can trigger a default. If those costs are already a strain, a HECM doesn't fix the underlying problem.

If you want to compare a HECM against other options side by side, including a HELOC or a cash-out refinance, the MyLola loan comparison tool can lay out those trade-offs clearly before you commit to anything.

The Conversation Worth Having with Your Advisor

If you have a financial advisor and you've never talked about your home equity as part of your retirement income strategy, bring it up. Ask specifically: "Should we be thinking about a coordinated HECM strategy alongside our investment withdrawals and Social Security timing?"

Some advisors are well-versed in this. Others are still operating from the old "reverse mortgage as last resort" playbook. You deserve an advisor who will at least run the analysis before ruling it out.

The same goes for adult children who are helping a parent navigate retirement finances. A HECM used proactively can actually preserve more estate value over time than an IRA being drawn down in a bad market. The math sometimes surprises people.

The question isn't whether you should use your home equity. The question is whether you want to use it deliberately or accidentally.

A Note on Austin-Area Home Values

If you own a home in Travis, Williamson, or Hays County, you're likely sitting on more equity than you realize, even accounting for the market corrections of the past couple of years. Westlake and Lakeway in particular have seen sustained long-term appreciation that has pushed a lot of homeowners well above the HECM lending limit.

For homes in that range, a proprietary jumbo reverse mortgage product might deserve a look alongside the standard HECM. The terms are different, the insurance structure is different, and the comparison is worth doing carefully.

I've worked with clients across the Austin metro for over two decades, and the one constant is that people systematically underestimate what their home equity could do for them in retirement. That's a solvable problem. It just requires the right conversation.

Want to walk through your numbers? Talk to Austen.

Austen Smith, NMLS #265697. Barton Creek Lending Group, NMLS #264320. This post is for educational purposes only and does not constitute a commitment to lend or a guarantee of approval. All loan scenarios depend on individual qualification, property appraisal, and program availability at time of application.