Many owners are overinvested in their homes and may need a new plan
Owning a home remains a key part of the American Dream but a new report warns that many people have secured a home while leaving their retirement years financially exposed.
The report from Unison shows that 25% of American homeowners plan to use their home to fund their retirement with 42$% citing their home equity as one of the four main components they expect to fund their retirement.
However, many of these are banking on home prices rising enough to provide the funds they need with 70% expecting its value to be higher by the time they retire, 35% think it will be worth 10% more, another 25% think it will be worth 25% more, and an optimistic 8% think it will be worth 50% more.
Just 12% of people think their house will be worth the same when they retire as it's worth today, and only 4% think the value might decrease.
Among the plans for releasing the value in their home are:
- selling the home and moving to a cheaper housing market (38%)
- moving to smaller home near their current neighborhood (21%)
- moving to a retirement home or community (12%)
- renting (7%)
- moving to a less expensive country (4%)
- living with their child (1%)
- unsure (14%)
"For many American homeowners, the home is their largest financial asset and should therefore be at the core of their financial planning, including planning for retirement. But most homeowners don't understand how to appropriately include this major asset, and the risk that comes with it, in planning for the future," CEO Thomas Sponholtz commented. "The extent to which homeowners, especially baby boomers, are financially underprepared for retirement is a concern. And the problem cannot be solved without including the home in financial plans."
Overinvested in their homes
Almost half of homeowners said they plan to retire in their 60s but 19% don’t know how much they will need to have saved by retirement.
The vast majority of American homeowners (90%) think of their home more as a financial asset than a financial burden, and homes figure prominently in their financial portfolios, but almost a quarter (23%) of those who say it's an asset don't yet know how they will use it.
A quarter of American homeowners (26%) say more than half their total net worth is tied up in their home while 32% say their home represents from a quarter up to half their total net worth. An additional 28% say 5 to 25% of their net worth is tied up in their home.
Home is where the heart is - but it's also an important part of your financial portfolio. Our latest research takes a deep dive into the state of homeownership today. Get the facts: https://t.co/Pp6G0pmy2d pic.twitter.com/wviGgUO9Yh
— Unison (@Unison) January 30, 2020
