Retirees have $2 trillion tied up in houses, money that can help make up for lagging 401(k)s and inevitable Social Security benefit cuts.

It is no secret that one of America's biggest challenges is financing the care of retirees who are living an average of 17 years after 65, when workers become eligible for full Social Security benefits.

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Government isn't likely to provide the solution — benefit cuts for Social Security and Medicare are unavoidable to keep those programs solvent. Private retirement plans also aren't filling the gap: the poor returns from the stock market since 2000 have scrambled the 401(k) planning of many retirees.

But there is another sizable pool of retiree assets that historically has been underutilized, according to new research. Surprisingly, even after the worst crash in housing prices since the 1930s, home equity offers an opportunity to help retirees maintain living standards in their golden years. The key is unlocking these resources.

Although half of homeowners' equity has been wiped out since prices began to fall in 2006, there is still a tremendous amount left — $ 6 trillion at last count. That's more than the total value of all mutual funds held by U.S. households and about the same as the value of all their CDs and savings accounts. While homes are worth 30% less than they were a few years ago, they are still the largest asset of many homeowners. And though news reports are full of stories about homeowners who have no equity or are "underwater," owing more on their mortgages than their homes are worth, there's an estimated $2 trillion or more of equity in homes with very little or no mortgage debt, much of it held by retirees. Fully a third of homes are owned free and clear.

In a recent paper, economist James Poterba and two colleagues note that the average amount of home equity held by households headed by someone age 65-69 is about $200,000. By comparison, the total those households have amassed in Social Security assets (the amount used to calculate their Social Security annuity benefit) averages $341,000.

But homes are a class of assets that is underutilized, say Poterba and his co-authors in "The Composition and Drawdown of Wealth in Retirement." Many retirees struggling to pay living expenses view the equity in their homes as an asset to be drawn on only in emergencies. When medical bills and other living expenses rise faster than expected, retirees resist tapping into home equity. Even many of those who don't intend to pass along the house to their kids end up doing so, along with a sizable capital gains tax bill.

The simplest option for tapping this resource is selling the home and renting or purchasing cheaper living space. The proceeds of all or part of such a sale can be used to purchase an annuity that pays out income for the life of the homeowner. Another option, for those who want to avoid a large tax bill, is a reverse mortgage, which pays out a lump sum to the homeowner, who stays put until death, at which time the home conveys to the reverse mortgage holder.

Barbara Stucki of the National Council on Aging agrees that retiree home equity is a tremendous and largely untapped resource, in part because options for homeowners are limited.

The number of major national companies offering reverse mortgages has dwindled to two, and their offerings are more limited than they were a few years ago. For example, only lump sum payments are available, as opposed to another arrangement that draws down the equity more slowly, preserving some of it for heirs if a retiree dies sooner than expected. Demand for reverse mortgages diminished in the housing boom, when people were more willing to do cash-out refinancings, since homes were surging in value every year.

But the primary reason this asset isn't exploited more often is that retirees tend not to think in strategic ways about nonfinancial assets such as their homes. Like lottery winners, many would rather receive the proceeds from a transaction as a lump sum, despite a steep tax bill, than consider purchasing an annuity.

Stucki would like government to partner with banks and groups like hers to educate retirees about how to best use all their resources. Lawmakers might even use tax incentives to promote different options for homeowners, provided that safeguards protect retirees from abuses like those of subprime borrowers.

This issue hasn't made it onto the Washington agenda yet, but it should. Retirees living ever longer won't be able to depend on government as much as in the past. They're going to need to get the most out of everything they have built in life, including their homes.