Home equity as part of retirement asset

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WhiteMaxima
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Home equity as part of retirement asset

Post by WhiteMaxima » Mon Jun 11, 2018 5:25 pm

Most Americans has large % of net worth in their house equity. People are paying big % of income into housing expense which include principle and interest. Just wondering why not include the equity it in your retirement?

msk
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Re: Home equity as part of retirement asset

Post by msk » Mon Jun 11, 2018 5:31 pm

If it makes a difference to your plans, include it. Let us assume you have $2 million paid off equity in your home. That makes a difference to most people's planning. But, say, it's only $100k. Nope. You still have to live somewhere. With the former $2 million you can always move to a lower cost house and retire.

delamer
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Re: Home equity as part of retirement asset

Post by delamer » Mon Jun 11, 2018 5:34 pm

It is an asset.

But unlike investments, it does not provide income.

The only way to get income from your house is to sell it or take a loan against it.

WhiteMaxima
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Re: Home equity as part of retirement asset

Post by WhiteMaxima » Mon Jun 11, 2018 5:38 pm

Say you have 1 mil in house equity but only 500k in retirement savings. When you retire, you are free to move away from job hub to a LCOL area (low property tax, low crime, low cost of living). Let's say you could buy a SFH with cash with 200k (it is still possible in most part of this country),you could be a neighbor with W Buffet live in Omaha NE. Say ou can have $2 McDonald special and chat with Mr Buffett 5 min for free everyday instead a 6mil steak dinner with him. Now you might end up with 1.3 mil in investment asset.Let's say cost of live is -30% less. then the 1.3 mil has the purchase power of 1.69 mil. Does it sound more reasonable? You could invest the house equity into a very secure balanced index or even dividend paying index (let's say 4% or 5% yield) and live with the dividend alone.

jalbert
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Re: Home equity as part of retirement asset

Post by jalbert » Mon Jun 11, 2018 5:47 pm

WhiteMaxima wrote:
Mon Jun 11, 2018 5:25 pm
Most Americans has large % of net worth in their house equity. People are paying big % of income into housing expense which include principle and interest. Just wondering why not include the equity it in your retirement?
If you include home equity as a retirement asset then you need to include the cost of renting your home as a retirement liability.
Risk is not a guarantor of return.

CurlyDave
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Re: Home equity as part of retirement asset

Post by CurlyDave » Mon Jun 11, 2018 5:56 pm

delamer wrote:
Mon Jun 11, 2018 5:34 pm
It is an asset.

But unlike investments, it does not provide income.

The only way to get income from your house is to sell it or take a loan against it.
I don't think this is really true.

In my neck of the woods, many retired people rent out part of their house, while living in another part. This generates income.

A friend just bought a house with what would ordinarily be considered a mother-in-law unit -- a smaller living quarters separate from the main house. He and his wife will live in it while renting out the main house. This will produce enough income to completely cover his mortgage payments and with any luck (and a little inflation) it will also produce spendable income in the future.

They are both mid-50s, and it is fairly easy to see that this income, plus rent-free living, plus SS will produce a reasonable retirement.

WhiteMaxima
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Re: Home equity as part of retirement asset

Post by WhiteMaxima » Mon Jun 11, 2018 5:56 pm

jalbert wrote:
Mon Jun 11, 2018 5:47 pm
WhiteMaxima wrote:
Mon Jun 11, 2018 5:25 pm
Most Americans has large % of net worth in their house equity. People are paying big % of income into housing expense which include principle and interest. Just wondering why not include the equity it in your retirement?
If you include home equity as a retirement asset then you need to include the cost of renting your home as a retirement liability.
Let's say you are paying $10000 property tax in SF for a 1.0 mil paid house. Now if you could rend a similar or smaller house in Wyoming for $10000 a year. With no State tax and low cost of living. It is quite possible.

delamer
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Re: Home equity as part of retirement asset

Post by delamer » Mon Jun 11, 2018 6:26 pm

CurlyDave wrote:
Mon Jun 11, 2018 5:56 pm
delamer wrote:
Mon Jun 11, 2018 5:34 pm
It is an asset.

But unlike investments, it does not provide income.

The only way to get income from your house is to sell it or take a loan against it.
I don't think this is really true.

In my neck of the woods, many retired people rent out part of their house, while living in another part. This generates income.

A friend just bought a house with what would ordinarily be considered a mother-in-law unit -- a smaller living quarters separate from the main house. He and his wife will live in it while renting out the main house. This will produce enough income to completely cover his mortgage payments and with any luck (and a little inflation) it will also produce spendable income in the future.

They are both mid-50s, and it is fairly easy to see that this income, plus rent-free living, plus SS will produce a reasonable retirement.

Sure this is done, but what percentage of retirees make money this way?

And they still have costs related to owning the house, like taxes, insurance, utilities, maintenance.

dbr
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Re: Home equity as part of retirement asset

Post by dbr » Mon Jun 11, 2018 6:28 pm

Your question is ambiguous. What does it mean to "include home equity in retirement"? You need more specificity than that.

The pertinent question is how is one to provide for one's needs and wants in retirement. If you have a house to live in that is certainly included, isn't it. There are also expenses involved in owning a house, so that is included too. A person gets income by withdrawing money from savings. One does not withdraw money from a house in the same sense, so the equity in the house is not part of "those" savings. But, as mentioned, one might rent some rooms in the house to (equivalently) get income or cut expenses. There are also reverse mortgages. Ultimately one can sell the house and add the proceeds to savings for future withdrawals. In the meantime housing will have to be provided by renting it. That may or may not cost more than the expenses of owning the house were. There is a continuum of downsizing (or upsizing) available. You just count up the assets relative to how they function and also count up the expenses.

All of this is obvious if you keep track of things specifically enough. But, again, there is no answer to an ambiguous question.

Nate79
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Re: Home equity as part of retirement asset

Post by Nate79 » Mon Jun 11, 2018 6:57 pm

Certainly a paid for home (or rent for that matter) should be part of a retirement PLAN. How one accounts for their housing cost in the retirement PLAN is part of putting a plan together. Just putting it as a "retirement asset" means nothing.

JoeRetire
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Re: Home equity as part of retirement asset

Post by JoeRetire » Mon Jun 11, 2018 6:58 pm

WhiteMaxima wrote:
Mon Jun 11, 2018 5:25 pm
Most Americans has large % of net worth in their house equity. People are paying big % of income into housing expense which include principle and interest. Just wondering why not include the equity it in your retirement?
Include it if you want. But home equity is rather different than most of your other retirement assets. It's good to keep that in mind.

I keep a Net Worth spreadsheet. It includes home equity. But I also track "Net Worth minus Home Equity" to use for retirement planning purposes, since I plan to live in one of my homes. I can't plan on that equity being available for cash flow.

CurlyDave
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Re: Home equity as part of retirement asset

Post by CurlyDave » Mon Jun 11, 2018 7:39 pm

delamer wrote:
Mon Jun 11, 2018 6:26 pm

...Sure this is done, but what percentage of retirees make money this way?..
Not enough.

Failure to examine all the possibilities is one reason why retirements fail.

halfnine
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Re: Home equity as part of retirement asset

Post by halfnine » Tue Jun 12, 2018 2:44 pm

My retirement plan is based on a 3.5% WR of net worth. If I own a home at retirement obviously home equity will be included as part of net worth but imputed rent will also be inclusive as an expense. This would make transitioning between home ownership and renting more seamless when looking at WR.

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tennisplyr
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Re: Home equity as part of retirement asset

Post by tennisplyr » Tue Jun 12, 2018 2:55 pm

My home equity was fully one-half of my net worth. Sold my home and downsized banking a nice chunk of change. Call it what you will, it has improved my retirement finances enormously.
Those who move forward with a happy spirit will find that things always work out.

WhiteMaxima
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Re: Home equity as part of retirement asset

Post by WhiteMaxima » Tue Jun 12, 2018 2:57 pm

halfnine wrote:
Tue Jun 12, 2018 2:44 pm
My retirement plan is based on a 3.5% WR of net worth. If I own a home at retirement obviously home equity will be included as part of net worth but imputed rent will also be inclusive as an expense. This would make transitioning between home ownership and renting more seamless when looking at WR.
Renting gives your more flexibility of traveling during retirement years. Free home equity, you could invest more agrressive without worry running out of money.

Jack FFR1846
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Re: Home equity as part of retirement asset

Post by Jack FFR1846 » Tue Jun 12, 2018 2:59 pm

If you plan to sell your home and not replace it at retirement, then it is a retirement asset. If you've already got a conversion van outside ready to go, then sure.

If you plan to live in it.....or sell it to live in another home that costs money.....then no.
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TheTimeLord
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Re: Home equity as part of retirement asset

Post by TheTimeLord » Tue Jun 12, 2018 3:01 pm

We assume we will eventually move into Independent Living followed by Assisted Living. At that point we will sell our home and use the proceeds and save a lot annually on property taxes.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

WhiteMaxima
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Re: Home equity as part of retirement asset

Post by WhiteMaxima » Tue Jun 12, 2018 3:23 pm

TheTimeLord wrote:
Tue Jun 12, 2018 3:01 pm
We assume we will eventually move into Independent Living followed by Assisted Living. At that point we will sell our home and use the proceeds and save a lot annually on property taxes.
Time in the market. Home equity is locked in the house, need to free it and put int into hard work into economy. if you wait till assistant living, time is running out. That why I strongly against pay off mortgage earlier.

MnD
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Re: Home equity as part of retirement asset

Post by MnD » Tue Jun 12, 2018 3:38 pm

Moving to Wyoming or carving up ones home into some sort of duplex seems a bit speculative for booking future retirement assets.
If that's a long-held firm plan and one is taking concrete actions to make that happen, I suppose it could be considered.
But I'd get on the details sooner rather than later. Older people aren't the best at making big changes.

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TheTimeLord
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Re: Home equity as part of retirement asset

Post by TheTimeLord » Tue Jun 12, 2018 3:43 pm

WhiteMaxima wrote:
Tue Jun 12, 2018 3:23 pm
TheTimeLord wrote:
Tue Jun 12, 2018 3:01 pm
We assume we will eventually move into Independent Living followed by Assisted Living. At that point we will sell our home and use the proceeds and save a lot annually on property taxes.
Time in the market. Home equity is locked in the house, need to free it and put int into hard work into economy. if you wait till assistant living, time is running out. That why I strongly against pay off mortgage earlier.
I have taken a path different than you recommend. Since I quite enjoy living in a home of my own I don't see selling it until we enter independent living. But to each their own. Besides if I wanted all my assets to be spending "Time in the Market" I would have a 100/0 AA.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

MnD
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Re: Home equity as part of retirement asset

Post by MnD » Tue Jun 12, 2018 3:45 pm

WhiteMaxima wrote:
Tue Jun 12, 2018 3:23 pm
Home equity is locked in the house, need to free it and put int into hard work into economy.
That's exactly the sort of jargon bank ads use to keep people in debt, cash-flow broke and making payments forever.

basspond
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Re: Home equity as part of retirement asset

Post by basspond » Tue Jun 12, 2018 3:49 pm

I wouldn't use it to fund my retirement except as a safety net for end of life expenses.

WhiteMaxima
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Re: Home equity as part of retirement asset

Post by WhiteMaxima » Tue Jun 12, 2018 3:51 pm

MnD wrote:
Tue Jun 12, 2018 3:45 pm
WhiteMaxima wrote:
Tue Jun 12, 2018 3:23 pm
Home equity is locked in the house, need to free it and put int into hard work into economy.
That's exactly the sort of jargon bank ads use to keep people in debt, cash-flow broke and making payments forever.
No, the freed capital is not going to be consumed (car, vacation, house remodeling). The freed capital is get into economy. Don't confuse consumption with investment. A house is a consumption. A company is an investment.

MnD
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Re: Home equity as part of retirement asset

Post by MnD » Tue Jun 12, 2018 4:08 pm

The $36K or thereabouts value I receive annually in imputed rent (tax-free no less) goes into the economy, or more investments or whatever I want to do with it. And I don't have to cut my home up into a duplex or move to Wyoming. :beer

afan
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Re: Home equity as part of retirement asset

Post by afan » Wed Jun 13, 2018 6:49 am

We have a vague plan to sell our current house and move farther out from the city once we retire. This would free up money since the new place would be cheaper. But we don't count on it as a retirement asset.

To the extent that one would go through with the sale and either buy something less expensive or rent then at least part of a house could be a retirement asset. Real estate is hard to price, if you have been there for a while you make have bit capital gains, it is illiquid, preparing a house and selling is a hassle... Not at all like spending some dividends.
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