Retirement Income

[Hermit]

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Interesting discussion. I would like to hear why those of you who do not consider a house to be an "income producing asset" think that way. For me it's easy, I own a house and I only have to pay 2 grand a year plus upkeep instead of $1600/mo. Not have to pay out is sorta the same as getting extra dough?

My lot costs me $450 per year. The motor home I live in was given to me. (I probably paid more than it was worth!) ~$400 per year in taxes & insurance. You could call it the motor home down by the creek. I think I am currently paying about what someone would be willing to part with for my housing. No extra dough here.

 

[mathjak107]

I see that the "income producing residence" is a topic of contention. Some people don't even consider it part of net worth.

For me it is easy. I own a home worth $350,000. If I were renting it would cost me $1600/mo. That's $1600/mo I don't have to pay. It's pretty much the same as if I had that much invested and sent that income to the landlord. And it's not that bad of an investment either. 1600 x 12 is $19,200. Reduced by the 2 grand property tax and also 10% upkeep it's $15,480. About 4.5%.

Granted a house is not a liquid asset and there are serious costs involved in selling as well as significant time delays. Unless you are fairly "well rooted", you are better off renting. However you do have to live somewhere and you do have to pay for it. Food, clothing and shelter eh? One of the "primary human needs"

Interesting discussion. I would like to hear why those of you who do not consider a house to be an "income producing asset" think that way. For me it's easy, I own a house and I only have to pay 2 grand a year plus upkeep instead of $1600/mo. Not have to pay out is sorta the same as getting extra dough?

a house you live in cuts expenses , it can improve cash flow . that is not the same thing as producing income .

that is why wall street looks at profits which can come from cost cutting as well as revenue which is income .

while it appears similar at first , cost cutting has a bottom after which increasing expenses or inflation can no longer be offset .

increasing income has no limits like cost cutting does .

a home is an expense , it just may be less of an expense then renting but that does not mean income increased a penny .

do not confuse improving crash flow with increasing income .

 

[Fedup]

Our SS alone will be significantly higher than $40K, even if we take them early. So, if our entire egg basket gets crushed, we can still survive.

However, if I croak before my wife, and that is most likely, with only my SS which is higher, she may have to do some tightening. Or not, as I have been the bigger spender.

I take care of that by buying life insurance. I'm younger than my husband. There is a good chance that I might live longer than my husband.

 

[Fedup]

I agree with Mathjak, I don't count owning a house as income because I don't want to think I have too much income when I don't. I encourages spending frivolously.

 

[mathjak107]

the costs of a home is on the expense side of a balance sheet . income is on the other side

 

[Meadbh]

a house you live in cuts expenses , it can improve cash flow . that is not the same thing as producing income.

do not confuse improving [-]crash[/-] cash flow with increasing income .

FIFY. I agree!

 

[RobbieB]

That makes sense, it is an expense but less than renting would be.

I added it here so that a "more level playing field" would be had for owners and renters.

 

[daylatedollarshort]

That makes sense, it is an expense but less than renting would be.

I added it here so that a "more level playing field" would be had for owners and renters.

I think there is a case for considering home appreciation as real estate investment income, especially in high rent areas. If a retiree has $500K in stocks or a $500K mortgage free house, would you count the unrealized capital gains in stocks as income but not the house appreciation?

 

[Fedup]

Stocks you can sell but a house you can only get a HELOC to have access to some equity but not all of it. I found out I can only get max on $400k.

 

[kcowan]

While we own our southern home (1760 sq.ft. ocean-view condo), we rent our northern penthouse. It is on rental land where the 100 year-land lease was established in 1966. So we have to earn enough money to pay the rent. (We had an extra $750k back in 1997 that we could have sunk into a purchase.)

OTOH we rent it out during our 6 months down south for premium rates. But we do not include the rent in our income.

So there are probably apples, oranges, and pineapples in these results!

 

[mathjak107]

I think there is a case for considering home appreciation as real estate investment income, especially in high rent areas. If a retiree has $500K in stocks or a $500K mortgage free house, would you count the unrealized capital gains in stocks as income but not the house appreciation?

you can't have both appreciation and cost cutting . you have to give up one in order to get the other . you can't sell your living room when you are living in it . you do not consume a stock and can rebalance or sell to create cash flow , .

a heloc or reverse mortgage is just taking loans. a reverse mortgage is really a loan with a balloon payment due when you no longer meet the terms . you can give them the asset in lieu .

there really is no way to access home equity while living in the house . you can only borrow additional money against it .

 

[Cobra9777]

My inner accountant is getting a kick out of this thread...

the costs of a home is on the expense side of a balance sheet . income is on the other side

Same as NW-Bound, I answered the poll based on expenses. I create whatever cash inflows I need to cover the outflows. Periodically, I check the sustainability of those inflows and outflows with FIRECalc and other tools. FWIW, FIRECalc says I could go 35% higher.

I sort-of understand OP's intent, but I just can't bring myself to count reinvested dividends in a tax-deferred account which I have no access to. Nor some imputed amount of avoided rent, which last time I checked, they don't accept for payment at the grocery store.

Perhaps we should have stuck to AGI with a few adjustments for things like Roth conversions, SS, municipal bond interest, etc.

 

[mathjak107]

just wait until you pull those dividends out of that retirement account , you will see just how much income they created by adding to the balance , ha ha ha .

in or out of a deferred account they are income , whether you choose to spend it yet or not .

income is income and expenses are expenses .

 

[RobbieB]

Yeah, apples, oranges and pineapples is pretty good.

You can't spend a house, but you can spend what you're not paying for it eh?

That's all this was, an effort to get a more "fair" comparison between incomes for those who rent and those who don't or who are still paying mortgages.

No biggie just a little "equalizer"

 

[daylatedollarshort]

you can't have both appreciation and cost cutting . you have to give up one in order to get the other . you can't sell your living room when you are living in it . you do not consume a stock and can rebalance or sell to create cash flow , .

a heloc or reverse mortgage is just taking loans. a reverse mortgage is really a loan with a balloon payment due when you no longer meet the terms . you can give them the asset in lieu .

there really is no way to access home equity while living in the house . you can only borrow additional money against it .

On a more extreme scale, to illustrate a point, I think there is difference between having $40K in retirement income and being a renter and having $40K in retirement income and owning a $10M house. The person with the $10M house has a lot of options including downsizing, moving to a lower cost of living area, or renting out the house and living some place cheaper.

 

[mathjak107]

whether a house is a million bucks or 100k as long as you consume it the value does not count .

until you turn it in to cash there is not much you can do with that equity living there without just borrowing an equivalent amount the same as any other loan.

in fact if you could get the bank to give you the money on your looks at the same terms you wouldn't need the house . .

 

[mathjak107]

Yeah, apples, oranges and pineapples is pretty good.

You can't spend a house, but you can spend what you're not paying for it eh?

That's all this was, an effort to get a more "fair" comparison between incomes for those who rent and those who don't or who are still paying mortgages.

No biggie just a little "equalizer"

it is just about cash flow and expenses , not income . don't forget a renter who gets rid of that 3 bedroom house and takes a 1 bedroom apartment ojnce the kids are out may have better cash flow then that homeowner still living in that house .

 

[daylatedollarshort]

whether a house is a million bucks or 100k as long as you consume it the value does not count .

until you turn it in to cash there is not much you can do with that equity living there without just borrowing an equivalent amount the same as any other loan.

in fact if you could get the bank to give you the money on your looks at the same terms you wouldn't need the house . .

I am not sure what you mean by "does not count". It may not count for this particular poll in your personal opinion, though RobbieB, the poll creator did say to consider home ownership. Given the choices in the above example, I would strongly prefer the $10M house option. I am not sure what the difference is between unrealized stock capital gains and unrealized capital gains on home appreciation if the retire does not intend to live in their current house forever. There is a big retirement community in our area and many retirees, if they live long enough, eventually sell their homes and move there.

Income has many different meanings so I agree no matter what people put it is probably comparing apples to oranges to pineapples.

 

[mathjak107]

when the day comes that house is no longer being consumed it can count towards income . no problem .

but until then you are using it and can't sell it until you stop using it .

no one uses a stock and the stock is not consumed . it can be liquidated in seconds . if you need more cash you can rebalance . you can't sell the living room .

it is like i own some very expensive original paintings . we would never count them as part of our income generating money since i have no interest in selling them . i am consuming them and they are an expense .

perhaps one day i will sell them and at that point the money will go in to the income generating pot but for now it is a consumption item

 

[Meadbh]

I am not sure what you mean by "does not count". It may not count for this particular poll in your personal opinion, though RobbieB, the poll creator did say to consider home ownership. Given the choices in the above example, I would strongly prefer the $10M house option. I am not sure what the difference is between unrealized stock capital gains and unrealized capital gains on home appreciation if the retire does not intend to live in their current house forever. There is a big retirement community in our area and many retirees, if they live long enough, eventually sell their homes and move there.

The difference is liquidity.

It's easy to realize a portion of the unrealized stock gains. Just sell some stock, only what you need, and keep the remainder. Unless the stock is rarely traded, it is a relatively liquid asset.

To realize home appreciation, you have to sell the entire house, with all the costs, hassle and delays that entails. You then have to find another place to live, and pay for it. Housing is an illiquid asset.

 

[daylatedollarshort]

The difference is liquidity.

It's easy to realize a portion of the unrealized stock gains. Just sell some stock, only what you need, and keep the remainder. Unless the stock is rarely traded, it is a relatively liquid asset.

To realize home appreciation, you have to sell the entire house, with all the costs, hassle and delays that entails. You then have to find another place to live, and pay for it. Housing is an illiquid asset.

Okay, I think most posters here all understand that it would take longer to sell real estate than stocks. I was referring to counting capital appreciation as income, not referring to liquidity. And houses can be rented out rather quickly, so in the example above I'd still take the $40K income and paid off $10M house.

 

[Meadbh]

Okay, I think most posters here all understand that it would take longer to sell real estate than stocks. I was referring to counting capital appreciation as income, not referring to liquidity.

I'd still take the $40K income and $10M house in the above example.

I don't think capital appreciation is income, either. The statement which I bolded addressed a different concept.

Unfortunately, many of us have only an imperfect knowledge of accounting principles and terms. Too many threads and polls are meaningless because many people want to choose their own definitions. Standardization would be required to make these surveys scientifically reliable.

 

[aja8888]

10% for upkeep? Wow.

Last year we spent 6% (new roof, new A/C, screened in patio, cut some trees down). But that was a one time year. Going forward, we are expecting <1% per year.

 

[mathjak107]

while capital appreciation isn't income " yet " the fact is a safe withdrawal rate assumes if needed principal can go to zero if need be at the end of 30 years . in down years you liquidate unrealized appreciation or principal and you can't figure that when you are living in that house .

 

[daylatedollarshort]

while capital appreciation isn't income " yet " the fact is a safe withdrawal rate assumes if needed principal can go to zero if need be at the end of 30 years . in down years you liquidate unrealized appreciation or principal and you can't figure that when you are living in that house .

Many in our area either have or have plans to "cash out" the house once they quit working and move some place cheaper.