Home is Where the Heart Is

July 17, 2019

Do you remember the day you moved into your own house? Despite the fact it’s been a few years, buying our first house has been one of the memories my wife and I still recall from time to time.

It’s a double-sided emotional experience for most. On one hand, I remember this weird feeling of awe soon after we had moved into our first home. I had glanced out a window at some grass, and realized that even though the grass was still, y’know, grass, it had somehow been magically elevated into something better because now that was grass in the yard we owned, in the house we bought, with our names on the mailbox. On the flip side of course, to be able to have our names on that mailbox, we had gone through weeks upon weeks of headaches—paperwork galore, dotting our i’s and crossing the t’s, not to mention the years of saving up every spare penny we had to secure the down payment.

                The point I’m trying to make here is I know that our houses are a big deal to us—we spent a lot of time getting ourselves into them, and it’s a huge facet of American life. Our houses are where we weather the storms of life, raise our families, and continue to grow into whoever we’re becoming. The problem lies when people take their houses further than they’re meant to go: their house becomes their financial security blanket.

                 There are usually two major plans that retirees who are banking on their houses to act as retirement accounts will explain to me that they’re planning to enact. The first is the most obvious: sell the house. Not a bad idea since the average Baby Boomer has a house worth somewhere in the $200,000 to $300,000 range…except, where will you live afterwards? If it’s with someone else (family, friend, etc), what if that falls through? What if your profit from selling the house runs out? Can you afford to rent the rest of your life, or to buy a smaller residence?

The other major plan of action is to take out a reverse mortgage, which were invented to allow seniors to access the equity in the home and bypass monthly mortgage payments. Unfortunately, these types of deals tend to put retirees in a “walking the tightrope” position.

On one hand, it’s great that you’re able to skip paying your mortgage, right? On the other, since you’re not making that monthly payment, the debt is compounding even faster since it’s only growing each month, and you’re not paying anything towards the principal cost of your home. If you decide to move into another house or health challenges have you moving into a care facility, you’re expected to close the loan—ie pay it off—within a year. If you pass away, your estate must pay back the value of the home plus a myriad of associated “fees” they’ll tack on as well. It’s a tactic that might be okay to do short-term, but long-term reverse mortgages just rely took much on everything staying in a frozen “status quo” life state. One wrong life event, and the whole thing cracks.

The biggest connection I always see between retirees with either of those ideas is that they decided this years ago, and they’ve never looked back sense. That’s not how you plan! A retirement plan is a well-thought-out process about what you want to do in retirement, and then working to develop a strategy that gets you to that goal using a variety of financial tools. Moreover, our plan must stay active, able to change if emergencies arise. Houses, unfortunately, are not built for active planning.

If you’d like to discuss your retirement plans and make sure you’re on track, or even if you’ve been relying on your house and would like a second opinion, please feel free to give us a call to make an appointment to meet with one of our financial advisors.