Home design is more than choosing curtains and paint color.
A bit of forethought can make your home not only the perfect place to relax, but a pivitol part of your financial (retirement) plan.
Many people consider their house to be their best investment. They hope that owning their home will prove to be a one-way street toward real-estate appreciation. In fact, people’s homes are often the largest percentage of their net worth. However, as I often remind clients, it may be fine to enjoy living in a nice house, but the house should be considered as your residence and not necessarily your retirement nest egg.
Home is certainly where your heart is, but planning on funding your retirement from the value of your home is risky. This is because real-estate prices do not move consistently, and there’s no guarantee that the price you will get for your house will be able to support your retirement. Turning home equity into cash in your hand is not easy.
Rich on paper and poor in the bank
Be wary of being paper rich but cash poor. If the majority of your assets are tied in your house and you need cash, you have limited liquidity. Home equity loans aren’t prudent if you are on a fixed income, because where will you get the extra cash to repay the loan?
While real estate may appreciate, in many cases American real-estate prices for new homes in the past 40 years have done only slightly better than returns on low-risk Treasury bills. And the advantage of Treasury bills is that it's not necessary to call the repairman every time something breaks.
Don’t put all your eggs in one basket
Even if current real-estate prices seem to be climbing, that trend will not necessarily continue. Don’t bank on the fact that your home’s appreciation will leave you with profits after you downsize and/or rent for several years. Depending on where you choose to retire, “smaller” may not mean “cheaper.”
While your home may be your nest, don’t put all your eggs in it. Diversify your investments and don’t lock all your wealth in your house.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.