It is a major concern for many working adults to save enough money for retirement. According to a 2024 CNBC survey conducted with SurveyMonkey, a striking 53% of Americans feel they are falling behind in their retirement planning.
While you might focus on visible assets like your bank accounts and investment portfolios, you could be overlooking a significant future asset: your home.
Mortgage as an asset for retirement
“People see the money in their bank,” explains Jason Stein to CNBC, a certified financial planner and founder of Bluepoint Wealth Advisors. “They see the money in their brokerage account, their 401(k)s, and their individual retirement accounts (IRAs). They often don’t think about the wealth that is accumulating in their home.”
Financial experts suggest that viewing your mortgage not just as an expense but as an integral part of your retirement savings could be a smart move.
Mortgage payments shouldn’t necessarily be seen as burdensome expenses. According to Winnie Sun, co-founder of Sun Group Wealth Partners, they can actually be considered a form of healthy debt.
- Equity Growth: Each mortgage payment increases your home equity, which can be a substantial asset by the time you retire.
- Property Appreciation: Over time, your home’s value is likely to appreciate, adding to your net worth.
- Investment Diversification: Including real estate in your retirement portfolio can provide diversification, reducing overall risk.
In conclusion, while it’s essential to save in traditional retirement accounts, don’t overlook the value of your home as a significant part of your retirement strategy. By shifting your perspective, you can see your mortgage as not just an expense, but a vital and beneficial component of your financial future.
When it comes to debt, there are both unhealthy and healthy forms. According to Sun, “There’s obviously unhealthy debt, like credit cards and things like that. And then there’s debt that could pay it forward. One is student loans, obviously, right? And then the mortgage.”
Understanding Healthy Debt for Retirement
Certain types of debt can actually be considered healthy because they fulfill essential needs like education or shelter. Generally, these debts come with consistent, predictable payments at a fixed rate, making them easier to manage.
Types of Healthy Debt
- Student Loans: These loans are an investment in your future, potentially leading to higher earnings and career advancement.
- Mortgages: This type of debt helps you acquire a home, providing stability and potential long-term financial benefits.
Breaking Down Mortgage Payments
Your mortgage cost is essentially divided into two parts: the interest and the principal amount of your loan, says Stein. The interest is the true expense of the loan, as you cannot recover it if you decide to sell your home. However, the dollars spent paying down the principal can be regained.
Regaining Value from Your Mortgage
Once you’ve paid off your mortgage, you can recover some of the value of those payments when you sell your home, even though there are transaction costs involved. This makes paying down your principal a long-term investment in your financial future.
Understanding the difference between healthy and unhealthy debt can be crucial in making informed financial decisions. By focusing on debts that provide long-term benefits, you can pave the way for a more secure financial future.
When you own a home, you’re not just securing a place to live; you’re making a valuable investment in your future. According to Sun, your home can act as a form of forced savings that pays off in the long run.
The Dual Benefits of Homeownership
While renting might seem more convenient, owning a home offers several key advantages. With a fixed-rate mortgage, you’re paying a steady, predetermined amount each month. This stability is in stark contrast to renting, where monthly payments can fluctuate.
Building Your Own Equity
“Owning a home isn’t the same as having an investment property, but it certainly provides benefits,” Sun explains. “Instead of paying rent to someone else, you’re paying your own mortgage. This means that over time, you have the opportunity to build equity in an asset that could appreciate.”
Preparing for Retirement
As your property value increases, the option to sell your home during retirement becomes a viable financial strategy. The cash from selling your home can significantly bolster your retirement savings, alleviating concerns about not having enough funds.
- Fixed-Rate Mortgage: Provides stable monthly payments.
- Equity Building: Every mortgage payment contributes to your own investment.
- Appreciation: Potential increase in property value over time.
- Retirement Planning: Selling your home can add to your retirement funds.
Your home is more than just a place to live; it’s a financial asset that can grow and support you in the future. By understanding these benefits, you can make informed decisions that will positively impact your long-term financial health.
Managing routine contributions to your retirement accounts, such as a 401(k), is an essential part of financial planning.
Unveiling Hidden Savings
“Each year, you’re actually saving more than you realize,” says Stein. “This is because you’re paying off a loan balance that, at some point in the future, can be recovered by selling the house, which also may have appreciated.”
Enhancing Your Retirement Cash Flow
Your expected cash flow in retirement likely includes sources like retirement account withdrawals and Social Security benefits. However, these may not be enough to support the lifestyle you desire. You may not want to cut out discretionary purchases, such as travel, Stein suggests. This is where selling your house might come into play.
