By Jonathan S. Kuttin
Your home can be more than a place to live — it is also one way you can strategically save for retirement. In some circumstances, a home can represent a significant asset. Over time, your home can build equity that may contribute to your long-term financial security. For example, a home with no mortgage or a low mortgage balance may stand out as a valuable asset for those nearing retirement. While you can’t count on it, many retirees downsize and as a result, free up some equity that they can use in retirement.
However, the housing bubble burst in 2007 is a good reminder to be cautious about putting too much emphasis on your home’s value as a retirement asset. Regardless of what’s happening in the housing market, here are three things to think about when considering your home’s impact on your retirement:
You need a home to live in.
Whether it is in your current house or somewhere else, housing will always be an expense for you. If you sell your current home, presume that some or all of the proceeds from the sale will be used to fund your housing expenses throughout retirement. If you spend two to three decades or more in retirement, housing could add up to a significant cost.
Selling your home might not be as easy as you think.
The housing market in many parts of the country has changed over the past decade. Depending on where you live, there may be a surplus of homes on the market. As a result, you might be disappointed in the price you are able to generate when you sell your property. Many people have discovered that their home equity is not as valuable as they might have expected. It’s important to keep a pulse on the housing market in your area to help determine what you may be able to get for your home.
Determining a home’s value can be difficult.
Unlike a stock, bond or mutual fund that can readily be priced in the market and bought or sold daily, a home is a different kind of investment. The value can’t be precisely determined, and it is not considered to be as much of a liquid asset.
Keeping these factors in mind, it’s important to maintain a proper perspective about the value of your home in the context of your overall financial picture. Be careful not to overestimate a home’s contribution to your retirement security based on its current valuation, because those numbers can change. Even if your home is appreciating in value, remain diligent about saving for retirement in other ways, such as through a workplace savings plan or an IRA.
Talk with a financial advisor about your plans for retirement and your home’s potential value to your portfolio. A qualified financial advisor can recommend strategies for generating income in retirement and provide guidance on how to build equity regardless of your home’s potential value at retirement. Then, any funds you generate from your home will be an added retirement bonus.
Jonathan S. Kuttin is a private wealth advisor with Kuttin-Metis Wealth Management, a private advisory practice of Ameriprise Financial Service, Inc. in Melville. He specializes in fee-based financial planning and asset management strategies, and has been in practice for 19 years.