Though often considered a retiree’s greatest asset, home equity may no longer be a reliable investment from which to draw upon during retirement, suggests a recent Morningstar article.
“For many retirees, home equity has traditionally been a steady fourth led of their retirement stool,” writes Morningstar contributor John Wasik. “In the past, growing home values could prop up one’s total wealth when the other legs (Social Security, pensions, and savings) appeared wobbly.”
But home equity, a.k.a that fourth leg of the “retirement stool,” may not be as sturdy for future retirees, suggests Wasik, especially when considering changing demographics, the housing crash of 2008 and the future of U.S. residential real estate.
It can be risky to count on home equity for spending needs in retirement, said Liz Revenko, a certified financial planner with Mosaic Financial Partners in San Francisco.
“I don’t necessarily view a home as a retirement investment,” Revenko said in the article. “It’s your personal residence—the place you live in, not a diversified, liquid investment.”
But for retirees who have been relying on their home’s value as they approach retirement, there are several considerations, including the use of a reverse mortgage.The article, however, clings to the notion that reverse mortgages are a loan of last resort.
“If you need money to live on, refinancing and doing a cash-out or obtaining a reverse mortgage is possible,” writes Wasik. “But those options require that you go into debt and pay closing fees. As such, these are really last-resort alternatives to obtain cash. They are inferior substitutes to prudent portfolio planning.”
Written by Jason Oliva