Live in your home, not off it
Marilyn Kennedy Melia
September 11, 2005
Many retirement experts have a message for all you fifty-something who are feeling smug watching your home's value multiply: Stop it.
Whether home equity should be counted as an asset that can provide retirement income is a hotly debated topic, says Rob Bennett, based in Purcellville, Va., who runs the Web site, PassionSaving.com.
Baby Boomers, notorious for poor savings habits, may be relying on their housing wealth to compensate for paltry 401k balances.
A recent study by Spectrem Group, Chicago, finds that even among affluent Baby Boomers --defined as those with investments of $500,000 or more -- about 63 percent intend to finance their eventual retirement by selling their primary residence. Many financial planners, however, say that a house is an asset we live in, not live off. "You shouldn't look at equity as a retirement fund, but it is a reserve source of funds to keep in the back of your mind," says Steven Weydert, executive vice president of Bowyer, Weydert Wealth Planning Partners Inc.
In fact, instead of planning to borrow against your house to finance retirement, Brinkman says it's often wise to pay off any mortgage before you quit working.
There's nothing inherently wrong with selling a house to take profits or get rid of heavy debt. Owners simply must be prepared to move to a less expensive place, planners say.
Instead of ignoring your home equity or taking depending on housing wealth to carry your retirement, maybe it's best to take an approach in the middle, Bennett says.
Because he retired early, Bennett withdraws no more than 4 percent of the value of his investments. But if he needs more money,
"I allow myself to take up to 2 percent of my [home] equity."
Bennett keeps a running tab on his home's value. He considers this a conservative strategy, because he will only
spend 2 percent of equity if his home value keeps climbing more than 2 percent.
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"...in 2000... My boss thought I was insane," Bennett said.
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