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Re: Home equity not a retirement solution?
Old 07-20-2006, 11:07 PM   #21
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Re: Home equity not a retirement solution?

I think people ERing and selling the home now are probably still in good shape (last year would have been ideal!) But a side of me wonders if this supposedly brilliant idea will stay briliiand ten years from now once 50 milloni babyboomers are all trying to sell their mcmansions at once to 35 million GenXers... the idea is good, but the price may not stay up there. We've gone through long periods of sagging real estate prices in this country, especially for larger homes, and it could happen again.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 04:44 AM   #22
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Re: Home equity not a retirement solution?

My inlaws home is saving my butt. They have very little but their house is worth $500K+. They are both in long term care and this turns out to be how its going to be paid for. It was probably the only decent investment he ever made.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 07:59 AM   #23
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by 2B
My inlaws home is saving my butt. They have very little but their house is worth $500K+. They are both in long term care and this turns out to be how its going to be paid for. It was probably the only decent investment he ever made.
Yeah, but it's not their home anymore -- the nursing home is, and now the house is just an asset. Unfortunate circumstances, but...

That kind of supports my view: your home is an asset (for FIRE planning purpose as opposed to estate planning) for just a few transient periods in live, such as moving, nursing home, collateral for HELOC, etc. The rest of the time, since you have to live somewhere, it's a lifestyle choice which simply reflects your priorities as to how much of your money you want to spend on what.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 10:30 AM   #24
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Re: Home equity not a retirement solution?

Eh, I can live in an apartment or in my in-laws rv and sell my house.

Its always an asset. Just not a primary one.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 10:35 AM   #25
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by Rich_in_Tampa
That kind of supports my view: your home is an asset (for FIRE planning purpose as opposed to estate planning) for just a few transient periods in live, such as moving, nursing home, collateral for HELOC, etc. The rest of the time, since you have to live somewhere, it's a lifestyle choice which simply reflects your priorities as to how much of your money you want to spend on what.
I am planning to keep my house for the duration and pass it on to the kids. But, in a pinch, a lived in house can help out with retirement. My FIL comes from a line of heart attack victims. He thought he would never see 70 and planned accordingly. At 80, his nest egg is pretty much tapped out. DW helped him arrange a reverse mortgage five years ago and he is doing fine.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 10:44 AM   #26
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Re: Home equity not a retirement solution?

I believe a house is certainly considered a retirement asset.

People say "you can't eat drywall" but you can't eat a mutual fund statement either, one is more liquid than the other but both undergo a transaction to become usable for other forms of trade and both can undergo fluxuations in value over short periods of time.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 10:59 AM   #27
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by Cute Fuzzy Bunny
Eh, I can live in an apartment or in my in-laws rv and sell my house.
Its always an asset. Just not a primary one.
This is semantics, I guess, but with practical consequences. I agree - a house is indeed an asset for estate planning, insurance, traditional net worth, an investment, and all that. Conceptually, though, I think most who are planning for FIRE are well advised not to add it to their FIRE resources for planning other than as a lifestyle choice.

If I had a clone who lived in a much more expensive house, but where everything else was identical, he would have less money to invest in order to meet other needs: same net worth in the traditional sense. My clone (with identical net worth) had better figure out how to live on a lower income than mine due to his lifestyle choice (aka bigger house).

Clone would have the potential to down-size and equal my income (or to travel less, eat less, drive junkers, etc.). That decision is a lifestyle priority choice and THAT is what is useful for FIRE planning. But if you don't intend to do that, you'd best not figure that asset in your plans except for lifestyle, no matter how much it's worth.

I'd say plan using dollars you have outside of your house. If you don't have enough, downsize first, then repeat.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 11:41 AM   #28
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by Rich_in_Tampa
If I had a clone who lived in a much more expensive house, but where everything else was identical, he would have less money to invest in order to meet other needs: same net worth in the traditional sense. My clone (with identical net worth) had better figure out how to live on a lower income than mine due to his lifestyle choice (aka bigger house).
Well, your clone could get a HELOC or a reverse mortgage (at 62). There are ways to make your house produce income, but there are also risks involved, just like with any other investment, especially a non-diversified one.

Quote:
I'd say plan using dollars you have outside of your house. If you don't have enough, downsize first, then repeat.
I tend to view houses as part lifestyle choices and part investments. In that latter capacity, they have a number of upsides and downsides. The downsides include:

1. Potential price fluctuations, which make it harder to plan for ER. If you are betting your ER on your ability to sell the house for $$$, downsize and live off the difference, then you are, well, betting.

2. Unpredictable liquidity. Sometimes you can sell your house in hours, sometimes it may take a year. A friend just sold a house to a drive-by buyer who fell in love with it. None of the other properties in the neighborhood have moved in the last month.

3. Sometimes unwieldy limits on things you can do with your house. For example, you will have a hard time getting a reverse mortgage if you are under 62.

Overall, I would say that your house is definitely a RE asset, just a unique and potentially volatile one that requires extra careful handling.

Thanks for the discussion, folks, it made me go over my thoughts on the subject and do a better job of organizing them, something that I needed to do* 8)
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Re: Home equity not a retirement solution?
Old 07-21-2006, 03:37 PM   #29
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by REWahoo!
A house is not a piggy bank
Forget home equity as retirement solution -- except when it's the only solution

[i]CHICAGO (MarketWatch) -- The equity you build up in your home is not a retirement-savings account, although many Americans are tempted to think that it is. But the smartest way to think about home equity, financial planners say, is as a cushion, a spare tire in reserve just in case savings calculations are off or liquid assets run out.
Okay, so here's my foolproof system for increasing your retirement savings overnight, which I will soon be selling for $19.95 on late night television:

Step 1. Believe the article saying that your home equity is not part of your retirement savings.
Step 2. Sell your home and start renting. Suddenly your retirment savings magically shoot up! It's like found money! Money from nothing!

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Re: Home equity not a retirement solution?
Old 07-21-2006, 03:52 PM   #30
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by Cute Fuzzy Bunny
Eh, I can live in an apartment or in my in-laws rv and sell my house.

Its always an asset. Just not a primary one.
CFB,
Now that you're married, can you really say that? I could live in a tent on the side of a mountain, but with the Princess, I'm afraid loftier digs are a necessity, now. Or are you going to tell us your wife not only works, cooks and looks terrific, but is willing to move into an RV, too? Such luck doesn't normally all fall into one guy's lap...
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Re: Home equity not a retirement solution?
Old 07-21-2006, 04:38 PM   #31
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Re: Home equity not a retirement solution?

Quote:
If I had a clone who lived in a much more expensive house, but where everything else was identical, he would have less money to invest in order to meet other needs: same net worth in the traditional sense. My clone (with identical net worth) had better figure out how to live on a lower income than mine due to his lifestyle choice (aka bigger house).
To make it even murkier your clone would also own an asset worth more than yours. So although his costs are higher, his yearly appreciation (not counting the current bubble decline but on average terms and locations) might be higher than yours as well. All oportunity costs.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 05:04 PM   #32
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by ESRBob
CFB,
Now that you're married, can you really say that? I could live in a tent on the side of a mountain, but with the Princess, I'm afraid loftier digs are a necessity, now. Or are you going to tell us your wife not only works, cooks and looks terrific, but is willing to move into an RV, too? Such luck doesn't normally all fall into one guy's lap...
Well (and amusingly) stated, Bob. Wife wants a house, not an apartment or tent? So much for that "asset" to bolster your retirement cash flow .
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Re: Home equity not a retirement solution?
Old 07-21-2006, 05:12 PM   #33
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Re: Home equity not a retirement solution?

My wife grew up in a straw hut in the jungle (when they had a home). I wonder if she would mind if we moved the family back into one of those...? It should cut down on the taxes and utility bills. And hey, with a dirt floor, I'll never have to vacuum again!
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Re: Home equity not a retirement solution?
Old 07-21-2006, 06:31 PM   #34
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by ESRBob
Now that you're married, can you really say that? I could live in a tent on the side of a mountain, but with the Princess, I'm afraid loftier digs are a necessity, now. Or are you going to tell us your wife not only works, cooks and looks terrific, but is willing to move into an RV, too? Such luck doesn't normally all fall into one guy's lap...
She doesnt usually cook but likes to, and is good at it. "Check!" on the other two items. I asked about living in an RV. She said she'd like a bed and a bathroom, everything else is optional. No tents please.

Heck, we could rent a nicer house than we're living in for $1200 a month. At 350-375k to sell the place, it'd take a while to eat that up in rent...
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Re: Home equity not a retirement solution?
Old 07-21-2006, 06:38 PM   #35
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Re: Home equity not a retirement solution?

Forget the semantics
Do you guys actually count on the value of your home as part of you retirement assets.
I think everyone agrees its a fall back position. Although many people are like my cousin and have spend the equity in the house on a new kitchen and an inground pool in the backyard.
I would rather have some funds outside of the home. Even if its in a loaded mutal fund Mostly cause if the poop hits the fan I can always get cash out of my fund and continue to pay the mortgage or the tax bill or whatever. Rather than having to jump through the hoops to get another mortgage/ heloc.
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Re: Home equity not a retirement solution?
Old 07-21-2006, 06:50 PM   #36
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by spideyrdpd

I think everyone agrees its a fall back position.
Nope, I don't.* So I guess not everyone agrees.*

Our retirement home is modest, but perfect for us, and we need to live somewhere.* Taking equity out of the house isn't in the retirement funding plan.

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Re: Home equity not a retirement solution?
Old 07-21-2006, 06:54 PM   #37
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Re: Home equity not a retirement solution?

I almost hate to even bother asking but...what the hey.

So you're sitting in your perfect modest retirement home and due to a series of events you've run out of money.

Do you sell the house, rent another place to live and eat, or sit in the house and starve?

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Re: Home equity not a retirement solution?
Old 07-22-2006, 07:35 AM   #38
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by Cute Fuzzy Bunny
So you're sitting in your perfect modest retirement home and due to a series of events you've run out of money.

Do you sell the house, rent another place to live and eat, or sit in the house and starve?
The answer to your question is obvious to me and probably to everyone else.

If you're like my in-laws, when ever the question came up their answer was always "they wanted to stay in their home." No problem seemed large enough to force them to sell -- even running out of money. That's the other factor that I think needs to be in everyone's retirement plan. At some point you can't make the right, rational decision. Someone else has to do it for you.

Half of the people over 85 have some form of dementia.
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Re: Home equity not a retirement solution?
Old 07-22-2006, 07:47 AM   #39
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by Cute Fuzzy Bunny
Do you sell the house, rent another place to live and eat, or sit in the house and starve?
So, you sell it and convert it to traditional "assets" then sign a lease which, in effect, lowers your cash flow by the rental amount, not to mention the fixed indebtedness of having signed a lease.

Has your "net worth" really changed much by selling it? Feels more like cash now, payments for the next xx years. Credit cards anyone?

Compare that to having had that $200K in your mutual fund portfolio.
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Re: Home equity not a retirement solution?
Old 07-22-2006, 08:58 AM   #40
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Re: Home equity not a retirement solution?

Quote:
Originally Posted by Cute Fuzzy Bunny
I almost hate to even bother asking but...what the hey.

So you're sitting in your perfect modest retirement home and due to a series of events you've run out of money.

Do you sell the house, rent another place to live and eat, or sit in the house and starve?
My house is paid off. If I run out of cash I go for a reverse mortgage until I am broke -- then I starve. In the meantime, my expenses are much lower than when I had a mortgage - thus piece of mind.

But lets try the alternative:

So you're sitting in your perfect modest rental place and due to a series of events you've run out of money.

Do you what, or sit on the street and starve?

Bottom line - the choice involves trade offs. See the other threads on the topic for details.
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