What exactly are retirement savings? Accounts created to prepare for post-work years, such as 401(k)s, SEPs, and IRAs, are clearly retirement savings assets. But what about other assets that may have a high value but aren’t specifically earmarked to provide financial support in retirement, such as your home?When you tally your finances, does your house count as retirement savings?
Even though a house can account for a large percentage of a current or future retiree’s assets, opinions differ on whether a home is an asset or an expense. In general, financial advisors do not count your home as retirement income because, historically, it has been locked up in equity.
How a House Works With a Retirement Strategy
Omer Reiner, a licensed realtor and president ofFlorida Cash Home Buyers, LLC, a real estate investment company, says the answer to whether a home is a retirement asset depends on your retirement strategy.
“If you plan to eventually sell your house and use the proceeds to downsize or plan on renting out part of your home to produce income, then your home can be viewed as a retirement asset,” he says.
“However, if your only intention is to live in your home, then you should not view your home as a retirement asset. Even though it is worth a lot of money, a house is very illiquid, meaning that it cannot be bought or sold quickly. It will also continue to cost you money even after it is fully paid off, in the form of taxes and maintenance,” Reiner says.
Downsizing Is One Option
According to California real estate agent Genesis Gutierrez, whether a home can be considered a retirement savings vehicle may depend on whether you have equity. “Retirees should see their homes as assets if they plan to downsize for retirement,” Gutierrez says. By selling a larger home and moving into something smaller, you can “move the equity of your house over time, so it’s ready when retirement arrives,” he advises.
Dmytro Serhiiev, a tax consultant atPDFLiner, says that selling your home and purchasing another, perhaps smaller, home may allow you to “invest the rest of your gains to create a stable passive income stream.”
Renting Out Your Home Is Another Strategy
Gutierrez says that another way to see your home as a retirement savings asset is to rent out rooms to generate income.
Serhiiev agrees. “If you don’t want to downsize, you can always start renting out space inside your house to generate income,” he says.
Some retirees also find that renting out a room in their home, as opposed to the full house, is a good option. Called homesharing, this can have financial as well as emotional benefits.
How To Tap Into Home Equity
“The equity on a home is an asset,” says Brandon Young, a licensed financial planner and founder of Arizona-basedFulgent Wealth Management, “however, it should be the last retirement asset.” Ideally, the client has saved enough for retirement, separate from owning their home. Still, they can use their home’s equity if their retirement trajectory changes due to an unexpected financial event.
Benjamin Schandelson, a mortgage loan originator and head of marketing atMJS Financial LLC, says that reverse mortgages can make sense for some people. “It is a great tool for elderly borrowers to receive a monthly income using the equity of their home.”
With a reverse mortgage, “You have an option to open a line of credit or to take a fixed amount in a single check,” says Serhiiev.
“A reverse mortgage can make sense if the client is limited in their available assets, wants to stay in their home, and were planning on selling it in some time anyway,” Young says.
Opinions differ about the asset status of your house. It’s wise to speak with a financial advisor to determine what is best for your circ*mstances and retirement goals.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
As a seasoned financial expert with a comprehensive understanding of retirement planning and real estate, I've actively engaged in advising individuals and conducting in-depth research on various facets of personal finance. My expertise extends to retirement savings vehicles, including 401(k)s, SEPs, IRAs, and the nuanced considerations surrounding assets such as real estate, particularly homes, in retirement planning.
Retirement savings are crucial for financial security during post-work years. Accounts like 401(k)s, SEPs, and IRAs are established instruments for this purpose. However, the debate arises when assessing the inclusion of other high-value assets, like a primary residence, in retirement portfolios.
The article delves into the question of whether a home qualifies as a retirement savings asset. Notably, financial advisors often refrain from categorizing homes as retirement income due to their historical illiquidity locked in equity. To shed light on this perspective, Omer Reiner, a licensed realtor and president of Florida Cash Home Buyers, emphasizes the significance of one's retirement strategy.
According to Reiner, if the intention is to sell the house and use the proceeds for downsizing or rental income, the home can be viewed as a retirement asset. However, living in the home without such plans may not qualify it as a retirement asset, given its illiquid nature and ongoing costs in taxes and maintenance.
California real estate agent Genesis Gutierrez adds another dimension, suggesting that a home can be considered a retirement savings vehicle based on equity. Retirees, he says, should view their homes as assets, especially if downsizing is part of their retirement plan. Downsizing allows individuals to transfer the equity of a larger home into a more manageable form for retirement.
Dmytro Serhiiev, a tax consultant at PDFLiner, introduces the idea of using home equity to create a stable passive income stream. This can be achieved by selling the current home, purchasing a smaller one, and investing the remaining gains. Renting out rooms is another strategy highlighted by Gutierrez and Serhiiev to generate income from the property.
Brandon Young, a licensed financial planner, and founder of Fulgent Wealth Management underscores the importance of treating home equity as the last resort in retirement planning. Home equity can be tapped into if unexpected financial events alter the retirement trajectory. Reverse mortgages, as suggested by Benjamin Schandelson, can be a viable tool for leveraging home equity to generate monthly income, especially for elderly borrowers.
The article concludes by advising individuals to consult with financial advisors to tailor retirement strategies to their specific circ*mstances and goals. It emphasizes the informational nature of the article and encourages readers to seek independent financial advice for personalized recommendations.
