3 Reasons You Shouldn't Count Your House as Part of Retirement Income

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Prepare for uncertainty before retirement.

Key points

  • You may be unwilling or unable to sell your house come retirement.
  • Reasons to hold onto a house include maintaining an independent living situation and living with dependents.
  • Feel free to include savings, IRAs, and stock market investments as part of retirement income.

New year, new savings. You’re one of the lucky Americans who owns a home that appreciates. That means you’ll have plenty of home equity to cash out for retirement — huzzah! 

Hang on. You may be making a mistake. Should you really be counting your house as part of your retirement income? After all, you’ll need somewhere to live in retirement. And your family may be depending on you to keep the house.

Financial advisors typically don’t count house value as part of retirement income. Here are three reasons you shouldn’t, either.

1. You’ll need somewhere to live in retirement

My friend, a 40-something-year-old mother of two, shuffled into the dining room, dejected. Her financial advisor just told her she has less money saved than she thought — that she shouldn’t count her house as part of her retirement income.

The reason: Even in retirement, she’ll need to live somewhere. The future is uncertain. She may plan on moving in with family members, but plans change. By the time my friend retires, her family may be living somewhere undesirable. She might also be unwilling to part with the memories she’s created over the years raising her kids at home. 

By holding onto her house — and her invested equity — my friend controls her future. However, there’s another option for folks who want to sell their home: They can downsize. That way, homeowners get to withdraw some cash and maintain a stable housing situation.

A third option is switching to renting. But rent can be expensive, especially if a homeowner has paid off their mortgage. Plus, homeowners lose access to an asset that grows more valuable over time — one they can pass on to their kids.

2. You may be living with dependents

Keeping dependents is more common than you’d think. One in three adults now lives with older family members, often to save money. Chances are, you won’t be selling your house if that means kicking out everyone who relies on you and your home to stay ahead of payments. 

If you live with dependents, you may be unable to sell and cash out the home equity needed for retirement. At the very least, it could delay your retirement, forcing you to reconsider your retirement budget.

3. You may be unable to find buyers

Homes are notoriously illiquid investments. When the housing market cools, few are willing to purchase a home. You may be unable to find a buyer come retirement.

There’s a caveat

You can often take out a home equity loan against your mortgage. That way, you can tap into the value of your home without selling. However, like all loans, you’ll have to pay interest on any money withdrawn. Taking out a loan is typically more expensive than not.

What should you include in your retirement income?

Plenty of investment vehicles count toward your retirement.

Here are three:

  1. Savings. The best savings accounts offer high rates and keep your money safe.
  2. An IRA. The best retirement accounts offer low fees and other juicy bonuses.
  3. Stock market investments. These can be volatile and may delay your retirement.

If you’re unsure whether to include your house as part of your retirement savings, ask yourself whether you’ll be willing to sell your home come retirement. Plan appropriately so you’re prepared for senior living. A strong retirement plan is a wonderful way to kick off the new year!