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Is your house your retirement plan?

Posted by Scott Van Voorhis December 3, 2013 09:12 AM

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OK, it's pretty clear Isitfriday has big plans for his house.

A regular on the comment board of this blog, isitfriday is confident his house, presumably somewhere in over-priced Greater Boston, will be his meal ticket when he retires.

After 30 years of paying the bank, isitfriday says he plans to be live debt free and then cash in on the equity built up in his house. With home prices on the rise again - and Boston area prices roughly 70 percent above their 2000 levels - it can be a tempting idea to indulge.

Here's isitfriday:

Is anyone else planning on using their house as a means to retire? I'm figuring in 30 years my mortgage will be paid off, house will be worth a lot more, and even if reverse mortgages don't exist, I'll still be able to sell for a good bit, downsize and spend all my money on healthcare!

OK, I like the idea of living mortgage free - that's likely part of my own retirement playbook once Karen and I finish paying off our Natick fixer-upper sometime in the 2030s.

But I am not so sure banking on a big gain in home equity - and planning to live off of it in your golden years - is the wisest thing.

Let's say your dreams of real estate wealth come true and your house soars in value over the next two or three decades.

Be careful what you wish for.

You may finally shed your mortgage payment only to find yourself with a crushing property tax burden. And while you might be eligible for some senior assistance, unlike your mortgage, you can count on having to pay property taxes as long as long as you are still breathing.

You need some other savings.

Here;s some blunt but honest advice from the National Endowment for Financial Education:

  •   A house is not a retirement plan! It may be your biggest asset, but housing prices fluctuate. You still need other forms of savings.
  • If at all possible, pay off your mortgage before you retire
  • Plan so you do not need to use home equity

Thirtysomething, another regular on the comment board of this blog, offers a similar take.

I don't think that is realistic. Let's say you have a $100k income and stretch (putting it mildly) to buy a $500k house. The price is likely to rise with inflation, perhaps doubling in 20-30 years, so it wouldn't be shocking if you were to sell it for $1M when you are ready to retire. But at the same time, the cost of living will have gone up. If you downsize to a property that is half as valuable, the $500k difference will only amount to 2.5x your annual income. That is only a small fraction of what you need to retire comfortably.

Owning your house free and clear of a mortgage reduces your cash needs, which can be an effective part of a retirement plan, but you shouldn't expect to live off the principal.

OK, so what's your retirement plan? Do you have other assets beside your house?

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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