Reverse Mortgages and Pension Sustainability: An Agent-Based and Actuarial Approach

Population aging poses significant challenges to the sustainability of pension systems. This study explores Reverse Mortgage Loans (RMLs) as a potential financial instrument to support retirees while alleviating pressure on public pensions. We develop a hybrid model combining actuarial techniques and agent-based simulations, incorporating stochastic housing prices, longevity risk, regulatory capital requirements, and demographic shifts. This framework enables a comprehensive evaluation of RMLs’ effects on both individual retirees and systemic financial stability. Simulation results indicate that RMLs can improve consumption smoothing, raise expected utility for retirees, and contribute to long-term fiscal sustainability. Moreover, we introduce a dynamic regulatory mechanism that adjusts capital buffers based on evolving market and demographic conditions, enhancing system resilience. These findings suggest that, when well-regulated, RMLs can serve as a viable supplement to traditional retirement financing. The model provides practical guidance for policymakers, financial institutions, and regulators aiming to integrate RMLs into broader pension reform strategies without compromising systemic integrity.