Does home equity liquidation reduce older adults’ poverty rate? Evidence from South Korea

Abstract

We investigate relative poverty rates among older adults from a unique dataset using an actuarial method applied to a public reverse mortgage in South Korea, which liquidates home equity and converts the assets to a readily available income. We find that it increases disposable income by approximately 20 per cent on average for older adults, and the improvement is more effective in the low-income quintiles. Due to the increased income, elderly poverty rate reduces significantly by 10 percentage points to about 31 per cent. Therefore, the elderly poverty rate following the OECD standard overestimates the elderly poverty rate and could misguide welfare policies.