Who factors house equity into their 'retirement income'?

[palomalou]

Yes, because our end game when we can't live independently is to sell the Manhattan condo.

 

[mathjak107]

i think we are all talking past each other. if you are selling the home then by all means you have to count it if there will be money left over.

if it is a wash for another home it is a moot point and if you are living in in it with no plan to sell than it is a moot point.

sometimes folks don't realize that selling it may not amount to a difference at all.

in our plan an apartment like ours goes for about 250-300k ,it is a two bedroom in a high rise in queens ny.

well we bought a potential home in the pocono mountains in PA. to retire to eventually.

well here in queens no one stays with us anymore as the family is local.

well in PA. everyone stays over so we would be going from a 2 bedroom apartment to a 3 bedroom house with a finished basement so everyone can stay over.

its a wash even though we thought at first housing costs would be less but never really thought it through.

we eventually sold the house 2 years ago as we realized we really didn't want to retire there. nyc has everything we need for a nice eventful retirement no matter what the weather or whether we can still drive or not.

 

[RunningBum]

i think we are all talking past each other. if you are selling the home then by all means you have to count it if there will be money left over.

Nobody has to count it. If I choose to leave it out of consideration because I want a safety buffer, or to leave the proceeds for my estate, or because I don't know what the replacement cost will be, that's my business.

 

[Pleeplus]

For net worth it is included, for retirement nope. I figure we will always need a roof over our head and even if we do decide to downsize, at this point I am considering it will be a wash. If it turns out to cost less to downsize then that will just be "gravy on the tators".

 

[DAYDREAMER]

Our second home is counted in our retirement fund, because it will be sold at a later date. We keep it because of the garage for storage and projects. Current primary home (beach house) is also counted in retirement fund, because if we ever get in a pinch for money later on, we could easily sell it and down size in home value and live off the extra proceeds. Well, after the 2008/2009 housing crash, maybe the word "easily" may not be accurate.

I do not include the primary home value in my fire calc. My retirement calculations use pension, SS, 401k, savings, and second home value (sold when Im 80). The primary home is the last safety asset to be sold before i grab my grociery cart and live under the bridge.

 

[clifp]

i think we are all talking past each other. if you are selling the home then by all means you have to count it if there will be money left over.

.

I'd also point out that age matters a lot in this situation. If you are in your 50s, you shouldn't count on home equity unless the house is in the market and you are downsizing. If you have a million dollar home, and $1 million in investment counting home equity and applying even a conservative 3.5% is likely to produce a bad result.

In imoldernu case, who I believe is in his 70s, he has solid plan to moving into a continuing care facility. Adding in his home equity makes a lot of sense.

 

[chris66]

Interesting reply.

And in genuine sincere interest - how does one plan to die in the house they own?

It sounds comforting, but what does that mean for the surviving spouse?

How is the surviving spouse supposed to cope and manage now there is only one in the house?

And, if this means a slow spiral down to a death-bed scenario, wouldn't it make more sense and compassion for your spouse and family members to be in a Hospice for such a case?

My vision of extreme old age where my own death is truly of 'old age' and slow decrepitude is that we would be forced to move out of our house because we would not be able to manage on our own and would not want to be a burden on our children - hence the probability of selling the house and moving into a retirement 'home' or assisted living.

And even if my own demise is swift and quick, my spouse may consider downsizing and moving to an apartment or retirement home to manage on her own.

I don't have children, and so don't plan to be taken care of by family members, but I don't understand this whole "we can't be a burden" thing. I hope our parents come to live with us when they need to, and we even selected the home we are in because it allows for that.

Expecting to take in older family members as needed, and then later live-in help, we bought a house that has a bedroom, bath, and living area on each level. The lower level living room type area will be the "man-cave" for now. It's a setup that provides for folks to live together, but with some autonomy. We hope we can afford live in help or visiting help at the point that its needed. We can certainly pay for lawn and home care when we can no longer do these things for less than the costs of communities where these are included. Having visiting nurses is pretty cost effective, too.

Many of my elderly family members have died in their own homes, so I don't see this as impossible. Those who have survived into their 90's, on both sides of my family, were still mentally very sharp. Cancer is a big killer in my family, and can hit at any age. If I get cancer, I want to die in the home where I'm comfortable, surrounded by family and pets. I'm very much a home-body, and I see no reason to go into a facility, unless I had lost my mind and was a danger to myself. I realize this is works well for others, and to each his own. For me, here's an example: I once had a bad reaction to a sedative when I had an out-patient procedure. I was kept overnight, and was still not holding down food. I demanded to go home, because I knew I'd feel better at home, even if I wasn't perfectly recovered. Maybe this sounds crazy, but the last place I want to be if I'm sick is a facility. Get me home in my own bed! For me, a long term situation in a facility would be harmful to my health -- as bad as a stressful job

I'm struggling with the issue right now, though, as my MIL is 93, has Parkinson's disease, and lives very rural, and does not want to leave her home where she lives by herself. I've told DH for years that we'll take her in, whenever she needs it. We're going to make another attempt at bringing her to live with us next month. Unlike our plan for ourselves, she does not have the money to pay for helpers, and we already provide financial support. She will be less of a burden if she lives with us, than trying to stay on top of issues from several states away. Mostly, though, we genuinely think she'll be happier with us, as she spends a lot of time alone right now. She definitely does not want to go into assisted living, and I agree that she would not be as happy there, so I can't push her to do that.

 

[Ronstar]

Phase I (now) - We do not factor home equity into retirement income because it is not generating income now.
Phase II is where we may downsize in 10 - 15 years and possibly sell our vacation condo as well. The gain would boost our portfolio and retirement income at that time.
Phase III is where we sell our house and/or condo to move into a apartment/assisted living situation in 25-30 years if we live that long, generating more retirement income then

 

[mathjak107]

pretty much that is how you need to look at it in my opinion.

throwing it in the mix as a spendable asset may look good in the numbers but if you are living in it and have no intention of selling it either now or in the very near future why bother.

it would be as silly as me throwing in my anticipated asset values down the road instead of what i have to work with today.

 

[Al in Ohio]

No. Unless you were to liquidate it and add the proceeds to your investments to pay out income while you become a renter.

 

[BBQ-Nut]

I did a poor job of titling the thread.....

My original question had more to do with asking how many are depending on *CASHING OUT* the equity of their home by selling it as a part of their retirement plan.

Or do people not count on it.

 

[robnplunder]

I did a poor job of titling the thread.....

My original question had more to do with asking how many are depending on *CASHING OUT* the equity of their home by selling it as a part of their retirement plan.

Or do people not count on it.

Yes, and no.

I have 4 scenarios on how I'd start my RE. On 2 scenarios, I am cashing it out to downsize. It'd add $250k to my RE fund, will make my RE more financially secure, and add ample amount of traveling to my lifestyle.

On the other 2 scenarios without downsizing, I don't cash it out but keep it as emergency fund when need it. My lifestyle will be status quo.

 

[rodi]

Our home equity is definitely our plan B/safety net. It's not counted as part of our plan A. No plans to cash it out - but that could change... We'll adapt to circumstances.

However - we're in an unusual situation. We built a granny flat (700sf freestanding 1br house) on our property. It can't be subdivided or sold separately. We built it for my in-laws, who lived in it for about 5 years. It's handicapped accessible (including roll in shower) and perfect for later in life. We may eventually move in there, and rent our primary home out.

In the meantime we rent it out. The income IS part of our retirement plan. So our home IS generating income for our retirement. At this point we're using the extra income to retire the mortgage sooner. We're almost to the mortgage free stage.

We count the value as part of our net worth. We count the rental income as part of our retirement income streams. But we don't count the equity in our retirement income streams.... but that could change if circumstances change.

 

[pb4uski]

I include my home equity in my net worth, but not in my retirement assets.

My expenses include property taxes, home insurance, home maintenance, etc. However, if I did not own but rented, then my expenses (and WR) would be higher by the excess of what it would to rent my home over my ownership costs.

So my home equity has the effect of reducing the nest-egg I need rather than increasing my investment assets. IOW, if I sold my home and rented, the equity would be included in my retirement assets but my living expenses would also increase would would mean I need more retirement assets to support my living expenses, so it is effectively a wash.

But to answer the OP's intended question, I don't plan to sell our home so the value doesn't factor into our plan other than the reduced expenses described above. If the investment results go south and we don't have enough money in our old age, then selling or a reverse mortgage would be a desperate option.

 

[obgyn65]

I am including a reverse mortgage in my 50-year FIRE model as a fall back plan in case things don't go as planned.

 

[rayvt]

I don't count my home equity for anything, neither net worth nor retirement assets.

The first reason was already said by somebody up-thread --- you have to live somewhere, so a house is really a consumption item. I don't count my stash of books and DVD movies in my net worth either.

The second reason is that -- by plan -- we have low equity in the house. $300K buried in one non-diversified, non-productive, illiquid asset is not a good financial plan. We have just enough equity in the house to get a good mortgage rate, and the money freed up by that is invested in our stocks/bonds portfolio. Keep your money out of your house.

The thing that gets me about these threads that this is the F.I.R.E. board, not the R.E.on-a-shoestring board. If you are depending on your house equity, then you are not F.I.

 

[W2R]

The thing that gets me about these threads that this is the F.I.R.E. board, not the R.E.on-a-shoestring board. If you are depending on your house equity, then you are not F.I.

I think these threads highlight regional differences in housing costs. If someone has a million in investments, plus a paid off home in coastal California that is worth several million, and has a retirement plan that involves moving to Arkansas, I can see how they might want to include the profits from selling that home in their retirement planning. And yet, I would not consider the resulting 4-5 million dollar portfolio to be retiring on a shoestring, either. YMMV

On the other hand, here in Louisiana that seems just nuts. So do the HGTV shows where they walk you through a 1500 square foot 1960's home and then tell you it's worth a million dollars. Those shows just evoke a knee jerk reaction from me, along the lines of "look at that! A sucker is born every minute!"

Edited to add: Still, the person in the above situation of having a multi-million dollar home in coastal California has a big problem in planning, because it is not sold until it is sold. In that situation I'd probably sell the home 2-3 years before retirement and rent until I could retire and move to Arkansas. At the same time, I'd move my investments from their accumulation phase AA into the planned distribution phase AA. Shouldn't be too tough with several million in cash to invest.

 

[Fermion]

I don't count my home equity for anything, neither net worth nor retirement assets.

Not counting it in net worth is ridiculous, but of course you can do anything you want. You could choose not to count stocks in your net worth because their value fluctuates and they are illiquid on the weekends.

 

[pb4uski]

+1 no recognized measure of personal net worth would exclude home equity, but if one wants to exclude it they are welcome to do so but would be an outlier.

 

[Independent]

1) The fact that we own a house without a mortgage payment means that our planned expenses are lower than they would be if were were renting or had a mortgage. So the home equity gets into our plan as reducing expenses rather than increasing income.

2) I've assumed that if we moved into a rented apartment, the proceeds from the house sale would be invested. The investment income would help pay for apartment rent. So selling the house is neither a plus nor a minus, it's just a transfer.

3) If one of us dies and the other moves into a LTC facility, I've figured that person could use up the principal from the house sale as funding for the facility. So the house is part of my LTC plan.

 

[RetireAge50]

Maybe towards the end if we needed the money--but not part of "the plan".

We will probably only have a simple, modest home at that point.

 

[rayvt]

Not counting it in net worth is ridiculous, but of course you can do anything you want. You could choose not to count stocks in your net worth because their value fluctuates and they are illiquid on the weekends.

Well, I don't count my thousands of books, our furniture, our clothes, or our cars in our net worth. What would be the point, other than bragging rights? There's net worth by adding up the value of every little asset we have, and there's net worth defined as the amount of cash you could raise in a reasonable amount of time without changing your lifestyle (moving into a refrigerator box and travelling by foot).

You can sell your stocks and have cash-in-hand in one day -- or maybe 3 days if it's a holiday weekend. Can't do that with a house.

You have to live somewhere. If you have a $250K house, you can convert it to cash, but then you have to buy another house -- which would be about the same price. Unless you are moving from a Malibu beach house to an Arkansas two-flat.

 

[pb4uski]

Well, I don't count my thousands of books, our furniture, our clothes, or our cars in our net worth. What would be the point, other than bragging rights? There's net worth by adding up the value of every little asset we have, and there's net worth defined as the amount of cash you could raise in a reasonable amount of time without changing your lifestyle (moving into a refrigerator box and travelling by foot).

You can sell your stocks and have cash-in-hand in one day -- or maybe 3 days if it's a holiday weekend. Can't do that with a house.

You have to live somewhere. If you have a $250K house, you can convert it to cash, but then you have to buy another house -- which would be about the same price. Unless you are moving from a Malibu beach house to an Arkansas two-flat.

Now you're truly being ridiculous. By your bizarre definition someone with income producing real estate should not include that in their net worth either.

I concede that cars and other personal belongings aren't typically counted because they are not significant, but if you had a particularly valuable collectible it would be counted.

 

[youbet]

The second reason is that -- by plan -- we have low equity in the house. $300K buried in one non-diversified, non-productive, illiquid asset is not a good financial plan. We have just enough equity in the house to get a good mortgage rate, and the money freed up by that is invested in our stocks/bonds portfolio. Keep your money out of your house.
.

Given that you don't have any significant equity in your house, why did you bother to answer? In your case, it's just a hypothetical position. There are others who, for their own reasons, have a significant portion of their net worth tied up in a house and therefore will be converting and using some/all of that equity into RE income.

Your answer is that you don't count home equity in FIRE financial planning because you don't have enough to worry about. And that's fine. But it certainly doesn't mean that someone who choses to lead a lifestyle where their home equity is a significant portion of their net worth should disregard their home equity in FIRE planning.

This thread reminds me a lot of the "mortgage - no mortgage" threads. Lots of deeply embedded, tunnel vision viewpoints. In reality, there are an infinite number of possible financial circumstances out there amongst folks prepping for FIRE, including folks who have a lot of home equity vs their total net worth.

 

[Dash man]

I don't include my house in any plans because my intentions are, if I move, are to simply buy a place of equal value minus any cost of selling or moving. Should I choose to liquidate my home to rent or move into a retirement facility, obviously those funds would move into my investments. But that is so far out into the future, I have no idea what the house would be worth at that point and would be foolish to guess and make financial decisions based on that. I'm more concerned about my known expenses and my cash flow than I am about my net worth. I know the same can be said about equities, but they are more liquid than real estate and produce dividends. My expenses are covered by my cash on hand ( at least 5 years) and I can supplement and replenish my cash at times I choose by liquidating my equities when the market is up rather than at a time I'm forced to out of need. If I get to the point of needing to sell my home, who knows what the market will be? I have LTC insurance, so the value of the house is more important to my kids than to me.