Who factors house equity into their 'retirement income'?

[youbet]

it sure could but until the day it is converted a home stays on the expense side of my balance sheet representing my cost of housing.
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An interesting way to look at things. Because expenses are not reported on a "balance sheet," I see it a bit differently. But, each to his own.

 

[tuixiu]

Absolutely. When we retire we plan on selling the home and renting, at the very least for a few years and possibly permanently.

We count the value of the home in our portfolio, and count anticipated rent expense in our cost of living estimates.

 

[nash031]

It's still an expense even after it's paid off, though less of a burden. With property taxes, utilities, upkeep and improvements...homes are a money pit.

Fact. Good point. Even with no mortgage, our present home would cost us at least $6500/yr property taxes, $300/month in HOA dues, and some pro-rated maintenance costs every year. Probably getting close to $10k/year or $800/month even without a mortgage.

Maybe we should be renters...

I have considered moving to rent elsewhere closeby, but keeping the home as an investment property and renting it out. Especially once it's paid off, it would be a significant income stream at the rents we can "command" in our neighborhood. Before the mortgage was paid off, we could probably break even on it.

 

[Cobra9777]

are you depending on 'cashing out' the equity by selling your home to pay for your retirement, or do people not include it?

We are not "depending" on it. Our numbers work fine without it. However, since our house is 2X bigger than what we need, we know that we will downsize at some point when we grow weary of the upkeep and expense. At that point, our housing costs go down and the delta equity becomes part of the retirement portfolio. The expense reduction and the delta equity are not trivial amounts in our case. So, yes, it is very definitely part of our retirement plan. Our current assumption is that we'll pull the trigger about 15 years from now.

As others have said the remaining equity in the new, smaller home is not considered in any retirement planning except as possible end-of-life emergency fund or inheritance. Of course it should always be included in net worth calculations.

 

[Andre1969]

I don't factor the equity into retirement income, but I do consider it sort of an emergency fund. I'd tap into it if I had to. And, if the stock market ever plunges again like it did back in 2008, as long as interest rates stay low, I'd definitely consider raiding some of it to buy more stocks/mutual funds.

As for an expense, well I figure I gotta live somewhere. If I'm not paying a mortgage/property taxes, I'm going to be paying rent. And around these parts, where a small apartment in an iffy neighborhood can be $2000 per month, the house is definitely saving me money!

 

[sengsational]

An accurate model will include all significant assets and their associated expenses. If you model living in the house 'forever', so be it. Your model will end with the house as an asset. One could argue that simply leaving the personal residence out of the model and just acknowledging that the net worth at the end would be increased by the .93 times the market value of the house at the end would be a valid approach.

But it seems like many/most will not die in their own owned house. If a sale is envisioned, then leaving the personal residence out of the model would not reflect the reality of the situation. Leaving the house out of the model might be considered conservative since the sale would suddenly add unexpected assets to the balance sheet. If the plan hung together before (with the expense associated with renting or in an assisted living place), then of course the plan will still work with the 'unexpected' real estate proceeds.

 

[audreyh1]

Not us.

It's part of our net worth, but I don't include it as part of our retirement portfolio for calculating our withdrawal rate. You've got to live somewhere.

 

[FireBug]

From our perspective (DW and myself) we don't include it any of our financial models. Equity is not part of net worth or income generating assets. It is in the back of our heads strictly as a safety net.

Funny, now if the question is asked of our adult children, I would bet OUR house is part of THEIR net worth. If you gits my drift.

 

[chris66]

An accurate model will include all significant assets and their associated expenses. If you model living in the house 'forever', so be it. Your model will end with the house as an asset. One could argue that simply leaving the personal residence out of the model and just acknowledging that the net worth at the end would be increased by the .93 times the market value of the house at the end would be a valid approach.

But it seems like many/most will not die in their own owned house. If a sale is envisioned, then leaving the personal residence out of the model would not reflect the reality of the situation. Leaving the house out of the model might be considered conservative since the sale would suddenly add unexpected assets to the balance sheet. If the plan hung together before (with the expense associated with renting or in an assisted living place), then of course the plan will still work with the 'unexpected' real estate proceeds.

Interesting points. We do in fact plan to stay here until we die. We selected this particular home for that very reason. That being said, we're acutely aware that folks often cannot remain in their home.

Still, I prefer to be conservative and not count the house. I do try to keep my pulse on the values of any homes I've lived in, and to do what I can to improve the home and the area it's in, so that the values go up...So...yeah, it is an asset that I track. Just not as part of my retirement income plan, nor even my net worth. Just bonus, I guess...

 

[RockyMtn]

Retirement income no...net worth yes.

 

[dvalley]

I count equity in my plan B not plan A. My plan A is to keep the house and pass it down to my kids. My plan B (if my target number falls short) is to use the equity from the house to buy a smaller (further away) house outright and get rid of the need for $20k per year. In other words, with downsizing I only need $35k per yr to survive comfortably vs. $55k per year.

 

[Willers]

A year ago I would have said no since we have no heirs and thought we'd live in our current home or one of equivalent value until we died. Recently we decided to live somewhere else in retirement and discovered while researching likely towns/cities that, in some, renting is much less expensive than buying (probably because of large numbers of "vacation" buyers). Now, I include a cash out at retirement as a possible scenario.

So the question may be - do you ever plan to sell or downsize (or want to leave it to heirs)? If not, I'd say it's net worth, but not in the investment bucket. If yes, then either a portion or all could be counted on to be invested and provide income.

My spreadsheets keep growing...

 

[Walt34]

Interesting points. We do in fact plan to stay here until we die. We selected this particular home for that very reason. That being said, we're acutely aware that folks often cannot remain in their home.

When we bought this house that was our intention too, to stay here until we die.

But more recent experience with older relatives has made us believe that that outlook, while optimistic, is probably not realistic. At a minimum the odds are not favorable. Hence the decision to look very carefully at CCRC's, where one has the option to live independently for as long as one is able and if the place is good, may well be better than here. At worst, the help is available when needed without a lot of anguish/extra work on the part of the other.

And I forgot who here wrote it but after dealing with selling FIL's house I can certainly understand the sentiment behind "If you love someone do not leave them real estate".

 

[NanoSour]

Excellent topic and just had a conversation with DW on whether she was amicable to selling the house at or before age 80. Surprisingly she was and could see ourselves set up in a CCRC, or a nice condo community depending our health. It will be nice to not have to deal with home ownership issues at that age.

I added the present value of our home, which will be paid off by then, into FRP and it really helps out in those last years.

Also, +1 what Walt34 says about leaving real estate for your heirs to deal with.

 

[Khan]

Just looked it up, house estimated at $63K. I'll be selling it when I move. We will draw up plans and wills for Florida property.

 

[mathjak107]

90% of the time you will hear retirees say the roll of the house is cost cutting. it enables them to retire on less income.

that is about all that you can really say about figuring it in unless you are selling.

but the cost of housing still exists no matter what you do. sell and the money from the sale now goes towards renting. buy another house and it goes into the other home. the ka-ching never stops over a life time,it just keeps adding up.

 

[imoldernu]

I've already had my say, and appreciate differing opinions, but for the life of me, can't understand this business of segregating the house.

Very simply, our plan is to use the house and social security to pay for the last ten years of our lives, (phase II) when we move into our 'one price for everything' rental CCRC retirement apartment.
Easy to calculate, and leaves what you might call the "portfolio" intact.

Our house is not that expensive, but when we sell, the cash from the sale, and our SS, will pay all of our basic expenses for those ten years.

When I read of others here, who have homes values at more than a half million dollars, I don't understand how or why the comment... "we don't count our house"...

I think Walt34 and I are on a similar course.

The other part that doesn't register with me is the part about... "but suppose you outlive your plans"... Well, we'll be over age 90... and we'll go back to w*rk.

So yeah... we factor our house in...

 

[BBQ-Nut]

Interesting points. We do in fact plan to stay here until we die. We selected this particular home for that very reason. That being said, we're acutely aware that folks often cannot remain in their home.

Still, I prefer to be conservative and not count the house. I do try to keep my pulse on the values of any homes I've lived in, and to do what I can to improve the home and the area it's in, so that the values go up...So...yeah, it is an asset that I track. Just not as part of my retirement income plan, nor even my net worth. Just bonus, I guess...

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.

 

[REWahoo]

I've already had my say, and appreciate differing opinions, but for the life of me, can't understand this business of segregating the house.

Very simply, our plan is to use the house and social security to pay for the last ten years of our lives, (phase II) when we move into our 'one price for everything' rental CCRC retirement apartment.
Easy to calculate, and leaves what you might call the "portfolio" intact.

Our house is not that expensive, but when we sell, the cash from the sale, and our SS, will pay all of our basic expenses for those ten years.

If you hung around the forum prior to 2008 you would have seen many threads regarding "cashing out" on the house and using the eqiity to fund a big chunk of retirement. That plan did not work out too well and reconfirmed my reluctance to consider the value of our house in any retirement planning.

 

[imoldernu]

If you hung around the forum prior to 2008 you would have seen many threads regarding "cashing out" on the house and using the eqiity to fund a big chunk of retirement. That plan did not work out too well and reconfirmed my reluctance to consider the value of our house in any retirement planning.

Hope you won't feel I'm being argumentative, and am sure you, and most of the members here know whereof you speak, but I'm still lost on this.

The CCRC that I'll be funding with the proceeds from the sale of my house (plus my SS)... is an all inclusive single one payment per month $2500 for both of us, for a 2BR 2BA apartment including meals, utilities, transportation, TV, internet, and community amenities... Exercise room, library etc, etc... Only extra expense is the phone bill.
It's a known, finite expense... except for inflation. Basically, the plan is one single dollar amount, funded by a known income source.

The fallback from this is the rest of the CCRC...from the apartments, a smooth transition into assisted living, nursing home or Alzheier Unit if and when necessary.

Lest anyone feel that we could get caught... that's not likely at this point. We do have enough assets and security for most reasonable health and entertainment costs for well beyond the 10 year plan.. Five years in the nursing home if necessary, and after our nursing home insurance runs out, it would be medicaid.

Keeping this phase 2 plan as a known single factor does give us peace of mind, moreso than a fuzzy picture of what might or might not happen.

I suppose it's a matter of semantics, but after a few years of "maybe we'll move to Florida permanently"... or "we'll just stay where we are and wait to see what happens" or "move to be near the kids"... we came to the decision as described above. It has had a calming effect on our lives, and makes sense to our sons. (They won't have to deal with closing everything down).
The final good part is that we can look at our net worth assets as a "whole", and not worrying about whether we'll be looking for an apartment, another house, or the variable expenses of repair and maintenance if we were to stay in our current villa (house) in the CCRC. It's a plan.

 

[BBQ-Nut]

Hope you won't feel I'm being argumentative, and am sure you, and most of the members here know whereof you speak, but I'm still lost on this.

The CCRC that I'll be funding with the proceeds from the sale of my house (plus my SS)... is an all inclusive single one payment per month $2500 for both of us, for a 2BR 2BA apartment including meals, utilities, transportation, TV, internet, and community amenities... Exercise room, library etc, etc... Only extra expense is the phone bill.
It's a known, finite expense... except for inflation. Basically, the plan is one single dollar amount, funded by a known income source.

Lest anyone feel that we could get caught... that's not likely at this point. We do have enough assets and security for most reasonable health and entertainment costs for well beyond the 10 year plan.. Five years in the nursing home if necessary, and after our nursing home insurance runs out, it will be medicaid.

Keeping this phase 2 plan as a known single factor does give us peace of mind, moreso than a fuzzy picture of what might or might not happen.

I suppose it's a matter of semantics, but after a few years of "maybe we'll move to Florida permanently"... or "we'll just stay where we are and wait to see what happens" or "move to be near the kids"... we came to the decision as described above. It has had a calming effect on our lives, and makes sense to our sons. (They won't have to deal with closing everything down).
The final good part is that we can look at our net worth assets as a "whole", and not worrying about whether we'll be looking for an apartment, another house, or the variable expenses of repair and maintenance if we were to stay in our current villa (house) in the CCRC. It's a plan.

How very responsible, considerate, and forward thinking. It matches how I envision very very late retirement planning and expenses.

It hit home recently when I was caught and drawn into a showing on PBS of "Moving with Grace" by Stone Phillips - regarding his mother, Grace - and the decisions they made to move his parents to an assisted living community.

It mirrored what may end up being the decision my own parents make and it got me to thinking that may be the final planning for my own/our situation.

Make the plans before you force very weighty and worrisome decisions on your children.....

 

[REWahoo]

The CCRC that I'll be funding with the proceeds from the sale of my house...

That's my concern - the sale of your house, especially at a "reasonable" price, is far from a given.

The probem I see with any plan relying on selling real estate to fund any part of retirement is based on those periods in recent history when no one is buying - even at severely reduced prices. I have witnesses those conditions twice in my lifetime and do not see any indication the cycle wont repeat again and again.

 

[imoldernu]

Yeah, on the selling price. So far, so good... our Villa is one of 65 similar homes built in 2000... We bought in 2004. At present, all homes are occupied and when one comes up for sale, not for long. Selling price has been mostly stable within $20K since then.
That wasn't the case with some of the Florida homes we had considered around 2006... Prices then, @ $299K, sold in 2012 for $139K...

 

[RetiredAndFree]

We do not. Our only consideration for it is downsizing to something smaller, and the amount of equity we get out of it would dictate the choice of a new place. Other than that, as was mentioned above, it is more an end of life "Emergency Fund", if needed.

+1

 

[knucklehead 61]

i count home equity in my plans.
our primary residence in san jose ca is for sale.
we will walk away with close to 500k in our pocket when it sells, then move into one of our rental homes for a while before moving to another rental we own out of state.
we own 18 rental properties. only 8 have mortgages on them, so our backup plan would have us sell one or two off if we need a bunch of quick cash. until then, we will be living nicely off of rental income, wifes ss, & our other non retirement investments.
then when i hit 59.5 years i'll be able to start with distributions from my 7 figure 401k if we need to.