This is, in part, because home values are increasing faster than wages, which is why some people see their homes as their biggest source of wealth. It’s worth remembering, though, that home values don’t always rise.
Before the extended growth period beginning in early 2012, the opposite happened. Between 2004 and the end of 2011, home values dropped more than 25 percent, according to Case-Shiller. Anyone in that period who was counting on their home as a source of retirement income was likely in trouble and had to delay retirement.
As we said, some Americans depend on their homes for retirement income because they don’t have enough in their retirement savings. Contributions to retirement funds have stagnated for those nearing retirement over the last few years. Ideally, by the time you hit 60 years old, your retirement account should hold eight times your retirement salary. Most people do not hit this milestone, though, and the trends are concerning.
Rather than relying solely on your home value to get you through retirement, it’s important to diversify. There are a few reasons for this. First, you have no idea what your home is going to be worth. Second, your home is not a liquid asset. It takes time to find a buyer, and you can’t be sure you’ll have access to money when you need it.
It’s usually not a good idea to buy a home solely for the investment value and have that be the only source of retirement income. When planning for the future, consider that your home should only be between 20 and 30 percent of your total net worth. Beef up your savings and retirement accounts to make sure you have what you need available to you when the time comes.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Individual investor’s results will vary. Past performance does not guarantee future results.
Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.