Buying a Home
Home sweet home − a retirement asset?
Your home offers shelter, comfort and wonderful memories with family and friends. But did you know that it's also an asset that can help you meet your retirement needs?
Using your home as an asset
Generally, homeowners hold onto their homes until death. And if they do sell, it usually doesn't happen until late in retirement following a major life change such as poor health or the death of a spouse.1
If you're among those who plan to own your home long into retirement, consider including it in your retirement plans as an asset and potential source of income during retirement.
Live rent free
If your home is paid off, you enjoy the benefit of living in your home rent free. Economists call this imputed rent. That means that because the home is paid for, you don't have a monthly expense for housing. That leaves you with more money to cover other expenses.
Use the equity
You don't have to sell your home in order to access its value. Some retirees choose equity loans or reverse mortgages to help cover their living expenses
Look before you leap
Keep in mind that there are drawbacks to using your home as an asset, particularly with a reverse mortgage. With a reverse mortgage, the lender gives you money and you make no repayments. So the amount you owe (your debt) gets larger each time you receive cash and as interest is added to your loan balance.
As your debt grows, your home equity shrinks unless your home's value is growing at a high rate. And, the reverse mortgage has to be paid back when you die, sell your home, or permanently move out of your home.
Are you interested in learning more about retirement preparations? Talk with your investment professional for help with retirement planning.
1For an extensive analysis of homeownership behavior at older ages, see Venti and Wise (2001).