4 Reasons You Shouldn’t Depend on Your Home Equity To Fund Your Retirement
Written by
Gabrielle Olya
Edited by
Amen Oyiboke
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While some homeowners may consider their home to be an “investment,” it may not provide as much financial security as you might think when it comes to being retirement-ready.
A recent survey from Point found that nearly 30% of homeowners ages 50 and older are not very confident they’ll be able to retire on time — or ever be able to fully leave the workforce. In addition, even though 48% of retirees view their home as a major part of their net worth, over 50% of working homeowners with more than $100,000 in home equity still don’t feel confident about retiring on time.
Unfortunately, this uncertainty may be warranted. Here are a few reasons you shouldn’t depend on your home equity to fund your retirement.
Home Equity Isn’t as Liquid as Other Forms of Retirement Savings
Having home equity can provide somewhat of a safety net, but it’s not as easy to access as you might think.
“While it represents a significant asset, accessing this equity can be challenging,” said Jake Falcon, founder and CEO of Falcon Wealth Advisors. “Options like home equity loans or reverse mortgages come with their own set of complexities and costs, which can make them less attractive for retirees.
“Additionally, selling a home to access equity might not be feasible or desirable for everyone,” he continued, “especially if they wish to remain in their current residence.”
Living Costs Are Increasing
The cost of living keeps rising, so having home equity simply won’t be enough to fund a retirement in many cases.
“Even with substantial home equity, retirees may find that their day-to-day expenses, including healthcare, utilities and other essentials, continue to increase,” Falcon said. “Without sufficient savings outside of home equity, it can be difficult to maintain the same standard of living.”
Having Diversified Forms of Retirement Savings Is a Safer Bet
Home equity can be one part of your retirement savings plan, but it shouldn’t be all of it.
“Relying solely on home equity can mean missing out on the benefits of diversified retirement savings,” Falcon said. “Retirement accounts like 401(k) [plans] and IRAs offer tax advantages and the potential for growth through investments, which home equity does not necessarily provide. This lack of diversification can leave retirees vulnerable to market fluctuations and other financial risks.”
Home Equity Fluctuates in Value
While real estate values tend to increase over time, this isn’t a given.
“There are often misconceptions about the true value of home equity,” Falcon said. “Home values can fluctuate, and the actual amount of equity available might be less than anticipated after accounting for mortgage balances and other liabilities.”
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