When (not if) pensions/social security/whatever become fully means tested, asset rich but cash poor people won't be left with much choice. They'll either need to downsize or tap into their home equity (in the absence of other assets) to make ends meet.
For example both my current neighbours are elderly people who live alone in houses worth around £1.5m (USD$1.85m) they own outright. Yet both struggle to survive on the government pension and have trouble making ends meet.
That said, it probably won't happen for quite some time as the baby boomer demographic bubble means all those cantankerous old folks can vote (and are more likely to actually turn out to vote!) so it would be politically unfeasible at the moment.
I do think this will be an area where we will see some innovative financial products developing, the current generation of "reverse mortgage" type products don't do old folks too many favours.