Denver Retirement Case Study: High Home Equity, High Uncertainty
Hypothetical example for educational purposes only. The couple and figures in this case study are illustrative, not actual clients or a prediction of results. Every household’s finances, property, health, tax situation, and loan terms are different. A reverse mortgage is not right for everyone.
A Denver couple, both age 68, had a paid-off home valued at about $1.9 million, $600,000 in IRA savings, and combined Social Security of $2,000 a month. Their retirement spending target was $7,500 per month. They were concerned that their savings might not support the life they wanted, and they began considering a familiar solution: sell the house, buy something smaller, and use the money left over to fill the income gap.
That can be a sensible choice for some households. But before making an irreversible move, they wanted to compare it with another question: could home equity help support the plan while they stayed in the home? We put both paths into a retirement stress test.
The decision was not simply “keep the house or sell it”
At first glance, the couple’s home looked like a large reserve of wealth. But a home is not a checking account. Selling would turn some of that equity into liquid assets, while also changing where they lived, the costs they paid, and the way they experienced retirement. Keeping the house preserved their current home, but did not automatically solve the monthly cash-flow challenge.
The useful comparison was between complete plans, not isolated balances. We looked at what selling and downsizing might release after the costs of a transaction and move, and compared that with a plan that kept the home in place and considered a standby Home Equity Conversion Mortgage (HECM) line of credit. The stress test was built to show how the portfolio and the credit line might interact over time under the assumptions entered.
Path one: sell and downsize
The couple considered selling their $1.9 million home and moving to a less expensive property. After estimated transaction and moving costs, the initial planning estimate was that roughly $1.1 million could be freed for retirement. That is an estimate for this hypothetical scenario, not a net-proceeds quote. The result would depend on the final sale price, the replacement home, repairs, real estate commissions and other closing costs, moving expenses, tax considerations, and the couple’s choices.
Downsizing can reduce some ongoing expenses, simplify maintenance, or place someone closer to family and services. It can also introduce costs that are easy to overlook. A new home may have a different property-tax basis or assessment, homeowners’ association fees, repairs, insurance, or accessibility work. The move itself can carry financial and emotional costs. The couple would be giving up a familiar home and neighborhood in exchange for liquidity and a different housing arrangement.
There is no universal right answer here. If a move is already part of the couple’s plans, or the current home no longer fits their needs, a sale may be the most straightforward choice. The stress test simply makes the trade-offs visible before they commit.
Path two: keep the home and test a standby HECM line
The alternative modeled was to remain in the home and establish a standby HECM line of credit, subject to eligibility, lender underwriting, property requirements, and the actual terms available to the borrowers. A HECM is a federally insured reverse mortgage for eligible homeowners, generally age 62 or older. It is a loan secured by the home, not a grant or a source of free money.
In the model, the couple’s retirement portfolio funded spending first, while the line of credit served as a potential reserve under the scenario’s assumptions. The stress test showed the portfolio-only plan reaching its modeled limit around age 82. With the modeled line-of-credit buffer, the plan extended beyond age 90. Those ages are outputs from this illustrative scenario, not guarantees, forecasts, or promises that funds will last to a particular age.
The difference is not that a credit line eliminates risk. It changes the sequence and sources of funds the plan can draw on, which may matter during periods when investment returns are weak or withdrawals are high. Results depend on assumptions about investment performance, inflation, spending, interest rates, home value, loan costs, timing of draws, and longevity. Different inputs can produce different outcomes. The model is a way to examine choices, not a prediction of the future.
What the stress test compared
| Planning question | Sell and downsize | Keep the home with a standby HECM line |
|---|---|---|
| Housing | Sell the current home and purchase or rent a different home | Remain in the current home, if that continues to fit the household |
| Potential liquidity | Illustrative estimate of roughly $1.1 million after transaction and moving costs | Access depends on eligibility, appraisal, loan terms, available principal limit, and costs |
| Modeled retirement result | Depends on the replacement housing cost and how sale proceeds are invested and spent | In this scenario, portfolio-only plan ran to about age 82; adding the modeled line-of-credit buffer extended the plan past 90 |
| Key trade-off | More liquid capital, but a move and a change in housing | Stay in the home, but take on a loan secured by it and its costs and obligations |
The table is not a recommendation. It identifies the questions the couple needed to answer. A personalized comparison should use the household’s actual budget, tax and investment details, expected housing costs, and verified loan terms.
Understand the HECM costs and obligations
A HECM has costs. Depending on the transaction, these may include an upfront mortgage insurance premium, origination charges, closing costs, servicing charges, and interest that accrues on amounts borrowed. The exact amounts and structure vary, so borrowers should review the Loan Estimate and other closing disclosures for the specific loan. A counselor approved by the U.S. Department of Housing and Urban Development must provide counseling before a HECM application can proceed.
Borrowers retain title to the home. The loan balance becomes due when a maturity event occurs, such as the last borrower leaving the home permanently or passing away, subject to the loan terms and applicable rules. The loan is non-recourse, which generally means neither the borrower nor heirs owe more than the home’s value when the loan is repaid, subject to program rules. Heirs who want to keep the property must repay the loan, typically by paying the balance or a qualifying percentage of the appraised value under current program rules; they may instead sell the home and use the proceeds to repay the loan. They do not simply inherit the home free and clear of the balance.
Borrowers must continue to meet loan obligations, including living in the home as their principal residence and paying property taxes, homeowners insurance, and required property charges, while maintaining the home. Failure to meet these obligations can put the loan at risk. These details should be discussed with a HUD-approved counselor and the lender before proceeding.
When this approach may not fit
A planned move within three years: if the couple expects to relocate soon, establishing a reverse mortgage may not make sense after accounting for its upfront costs and the short time they expect to use it. The right comparison includes the likely move date and the costs of both options.
Medicaid and long-term-care planning: using or retaining home equity, drawing loan proceeds, and changing assets can affect means-tested benefits or interact with a long-term-care plan. Rules depend on the person’s circumstances and jurisdiction. Anyone who may need Medicaid should speak with an elder-law attorney or qualified benefits planner before acting, rather than relying on a general article or a loan illustration.
Full cost review: if the household is unwilling or unable to pay the ongoing property charges and maintain the home, or if the full loan costs do not support the plan, this is not the right tool. The costs should be compared with the costs of moving, selling, borrowing elsewhere, or using other assets.
The useful question was the one they asked next
Once both paths were modeled, the couple no longer had to debate whether a $1.9 million house was “too much house” in the abstract. They could ask a more useful question: which plan best supports their desired spending and housing, while leaving room for uncertainty?
That is what a retirement stress test is for. It lays out the assumptions, compares possible strategies, and shows where a plan appears sensitive. It cannot remove uncertainty or make a financial decision for someone. It can help a household and its financial and tax professionals have a more concrete conversation about the choices.
If you are weighing a move, portfolio withdrawals, or home equity as part of retirement, Run My Numbers → to see how your own assumptions compare. The results are educational and should be reviewed with qualified financial, tax, legal, and housing professionals before you make a decision.
Educational information only. This hypothetical case study is not financial, tax, legal, investment, or lending advice and does not represent a real borrower. HECM eligibility, proceeds, costs, and terms depend on individual circumstances and lender requirements. Consult a HUD-approved HECM counselor and qualified professionals. Tane Cabe, NMLS 78590, Barrett Financial Corp, NMLS 181106.
