Are You Counting on Your Home Equity to Retire?

cover photo courtesy of 401(k) 2013 on Flickr

A recent survey by financial planning behemoth Amerprise (reported by NY Times) revealed that nearly half of older working Americans expect to count on their home equity to help with retirement. This result is up sharply from the 37% who expected to use home equity before the recession.

Photo Source: 401(k) 2013

Why Is That?

That’s a bit surprising because home equity value was shooting up before the recession. One would think that people would naturally desire to use it to enhance their retirement quality of life. But people don’t often think that way about housing. Before the recession, people were making money in stocks, had good jobs etc and likely planned to live in their home until they were carried out “feet first.” Today, with stocks just making it back to break-even from 2007, and with many boomers likely underemployed, they are forced to consider their home equity.

And it’s likely that with the growth of fun retirement communities and affordable vacation homes on one hand, and the increasing acceptance and understanding of reverse mortgages by the public on the other hand, one way or another home equity will be used.

Want to “downsize” to this?

Down-sizers will sell their expensive homes, buy a less expensive condo or vacation home, and pocket the difference (that’s what I call REAPP the rewards). Those with home equity but not much else in the way of income or savings might convert that equity into a reverse mortgage check to maintain their lifestyle.

Major Decision

I have been dealing with down-sizers for years, as one of my specialties. The decision to down-size one’s home is enormous for some people and interestingly, almost a laughably simple decision for others. I still feel amazement when in a short period of time, I meet with someone who is emotionally attached to their home and I’m recommending they put all their stuff in storage when they move so they can take their time deciding what to throw away, and then soon after meet with a different person who is excited to move and can’t wait to sell!

For me, I understand the emotional connection to a home, but it would never come before enjoying the basic enjoyments of life. It’s

Really? You’d choose this over selling the house? Photo source: USDAgov

incredible – I have encountered numerous people who will not sell their home, living in near poverty because their income has remained flat for years as (what the govt calls nonexistent) inflation has increased their property taxes, heating bill, food bill, health insurance bill, auto expenses, cable bill- you name it. These people will not sell, down-size, and refuse to use the potential profits from a home sale to enjoy even the basics such as having lunch with a friend.

And furthermore, I work with many younger people trying to help parents make this decision. This is simply, not fun. Nothing like seeing your parents suffer financially while they refuse to sell their home. It can be frustrating but we must allow people to live their life on their own terms, at least overtly. Parents will often not listen to their adult children – so my advice is to try to let the idea come to them and let them think they made their own decision to downsize, while you subliminally drop hints (not too often). It can’t be like that scene from the Clint Eastwood movie Gran Torino where he throws his son and daughter-in-law out of the house after they pushed him too hard to down-size to a retirement community! I couldn’t find a video clip of that scene (love it) but I did find this final scene, where he writes his family out of his will – enjoy:

What happens at the will reading when you push your parents too far!

(Scene from Gran Torino with Clint Eastwood)