Your Home: A Retirement Investment or an Expense?
A persistent debate surrounds the question of whether your home is an investment or simply the expense of providing a roof over your head. Regardless of which camp you are in, the home is the 2nd most important retirement resource for many of today’s retirees, right behind Social Security. That is according to the Investment Company Institute’s 2013 Fact Book.
How Investing in Your Home Can Fund Retirement
So is your home an investment? For retirees who own their own home, they tend to have no mortgage debt or a small mortgage relative to the home’s value. They can access this value by living in their homes and not paying rent. This is similar to owning an annuity that pays a monthly distribution.
A recent Forbes article, Is Relying On Home Equity For Retirement A Good Idea?, reported 47% of Americans who responded to an Ameriprise Financial survey are relying on home equity to fund their retirement. However, 37% don’t expect to have their mortgage paid off when they retire.
Options for freeing up your home’s equity to fund retirement include a reverse mortgage, home equity line of credit, and home equity loan. A caution when considering these methods is they “may be a lot more expensive than they first seem, as the interest rates and fees associated with them are typically quite high.”
“Avoiding any loans and downsizing your home instead could be one method for safely unlocking some of the equity you’ve built up in your existing property while still ensuring that you have a secure place to live.”
If your retirement plan is to live a large part of the year in a warmer state or traveling the world, or if you want to be rid of the ongoing expense of maintaining a home, selling your home, investing the cash, and renting may be your best option.
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All website and blog information is provided solely for convenience purposes only and readers should consult with their investment counselor and/or tax professional prior on any investment decisions.