4 Mistakes Homeowners Make That Cost Them in Retirement
Written by
Cindy Lamothe
Edited by
Chris Cluff
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Homeownership can offer a sense of stability and security; but, according to experts, it’s a long way from a guaranteed route to an adequate retirement income.
“There is a myth that home equity will pay for retirement, a belief that leads many people to be complacent about building other savings and investments,” said Kevin Huffman, owner of Kriminil Trading. “The problem is that home equity is risky. If property prices fall and you need to sell, you may end up short of retirement income. And if you need to move unexpectedly, you may have to sell for less than you hoped.”
Here are some mistakes homeowners make that can cost them big in retirement.
Not Paying Off Your House
According to Darcy Turner, acquisition manager at Investor Home Buyers, not paying off your house is one of the biggest mistakes you can make when preparing for retirement.
“Homeowners who still have mortgage payments to make during retirement can be hit with a major financial burden, especially if they are living on a fixed income,” Turner said.
By not fully owning their homes, retirees may struggle to cover expenses and maintain their desired lifestyle.
To avoid this mistake, Turner said, it’s important for homeowners to plan ahead and prioritize paying off their mortgages before retirement.
He said, “This may require making extra payments or downsizing to a more affordable home before retiring.”
Not Having a Plan for Maintaining Your Home
As people age, it becomes increasingly difficult to maintain a home and keep up with necessary repairs and renovations. However, Turner noted that many homeowners fail to consider these costs when preparing for retirement.
“Without a plan in place for maintaining their home, retirees may face unexpected expenses that can quickly deplete their savings.”
For this reason, it’s important for homeowners to budget for ongoing maintenance and factor it into their retirement plans.
Ashley Gawley agreed: “As a real estate coach, I often see homeowners make the mistake of not developing a comprehensive financial plan for their retirement, especially as it relates to their home.”
Simply paying off your mortgage is not enough. Homeowners need to consider ongoing costs such as property taxes, insurance and maintenance, which can easily total $10,000 per year or more for a typical home.”
Downsizing Too Much or Too Little
Another common mistake among homeowners is downsizing either too much or too little during retirement.
“Some may choose to downsize to a smaller home in order to save money on mortgage payments and upkeep,” Turner explained. “While this can be a smart financial move, it is important to also consider the emotional impact of leaving a family home.”
On the other hand, she said, some homeowners may downsize too little and end up with a home that is too large and costly to maintain during retirement.
“It is important for individuals to carefully consider their current and future needs when deciding on the appropriate size of their home,” Turner said.
Gawley observed the same: “Downsizing too quickly can also be a costly mistake. Many homeowners sell their home too soon, only to realize a few years into retirement that they need more space as kids and grandkids visit more often. It’s better to be right-size for the long-term to avoid multiple moves.”
On the flip side, not downsizing at all can be problematic, Gawley said. “An oversized home means higher utility bills, insurance and property tax costs which can strain a retirement budget.”
She explained that the equity trapped in the home also could be put to better use, invested for higher returns.
“The key is striking a balance,” she said, “potentially moving to a smaller home that still meets your needs but allows you to free up equity for other retirement expenses.”
Not Investing in Other Assets
Many homeowners put all their eggs in one basket by solely relying on the value of their home for retirement savings, Turner said.
“While owning a home can be a valuable asset, it is important to diversify and invest in other assets as well,” Turner said. “Not investing in other assets, such as stocks, bonds, or retirement accounts, can leave homeowners vulnerable to market fluctuations and limit their financial growth potential.”
According to Turner, it’s important for homeowners to seek professional financial advice and develop a well-rounded investment portfolio for a secure retirement.
The Bottom Line
Experts agree that with proper planning, homeowners can avoid these costly mistakes and retire comfortably without worrying their homes will become financial burdens.
“But it requires thinking through issues like cash flow, healthcare costs, inflation and market returns to develop a realistic plan,” Rawley said. “As with many of life’s problems, a little foresight and preparation goes a long way.”
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