Can Your House Fund Your Retirement?

By: Jack Strulowitz

There’s a running joke that the most popular savings account doesn’t have a routing number. It’s the one with a front lawn. For a lot of families in our community, their house isn’t just where they live; it’s where they keep their money. It’s their safety net, their fallback, and for some people, it’s basically their entire retirement strategy.

And I get it. Home values in our neighborhood have appreciated like crazy over the years. If you bought your house twenty or thirty years ago, the market value today might be three or four times what you originally paid. It feels like wealth. It feels like security. But here’s what most people don’t stop to think about: you can’t swipe your living room at the grocery store. That number, as impressive as it looks, is locked inside the walls of your house.

When you own a home that has appreciated significantly in value, you’re sitting on what accountants would call an “illiquid asset.” That’s a fancy way of saying you technically have the money but you can’t use it without jumping through hoops, each of which comes with its own set of complications that most people don’t fully think through until they’re already in the thick of it.

A lot of families in the community have tapped into their home equity over the years for all sorts of things, whether it’s a chasunah, tuition, or just getting through a rough stretch, and every time you pull from that well, the well gets a little shallower. And if that well is also supposed to fund your retirement, you might be surprised at how little is actually left when the time comes.

Here’s the part that really trips people up. Let’s say your home is worth $1.5 million and you still owe $400,000 on it between your original mortgage and a HELOC you took out a few years ago. On paper you have over a million dollars in equity. That sounds like a lot. But what does it actually look like in practice?

If you want to access that equity in retirement, you basically have two choices. You can sell the house or you can borrow against it. If you sell, you still need somewhere to live, and unless you’re planning to move to a place where housing costs a fraction of what it does here, a huge chunk of that equity is going right back into your next home. If you’re downsizing from a house to a condo, you might free up a few hundred thousand dollars. That’s not nothing, but it’s also not the million-dollar nest egg you had in your head. And by the way, when you do sell, you’re also likely going to owe capital gains tax on the profit, even after the $500,000 exemption for married couples and whatever capital improvements you’ve made over the years. So that equity number shrinks again before you ever see it.

And some people figure they’ll sell the house and just rent an apartment, which sounds simple enough until you realize what rents actually look like these days. A decent apartment in the area can easily run three, four, five thousand dollars a month, and that adds up fast. Over ten or fifteen years of retirement, you could end up spending more on rent than the equity you freed up by selling your house in the first place. You traded an asset for an expense, and the math doesn’t always work out the way people assume it will.

The other option is to borrow against your home through a reverse mortgage or another HELOC. But now you’re taking on debt in retirement, which is the financial equivalent of running the last five miles of a marathon in sandals. You can technically do it, but it’s going to hurt and you’re not going to finish strong.

There’s another problem almost nobody considers. A house is a single asset in a single location. If you had a million dollars in an investment portfolio and your advisor told you he put all of it in one stock, you’d think he lost his mind. But that’s essentially what you’re doing when your home represents the majority of your retirement savings. If something shifts in the neighborhood, if property values dip, if taxes go up dramatically, your entire retirement picture could change overnight.

Compare that to a well-structured retirement portfolio where your money is diversified across different types of investments, generating income that you can actually live on without selling anything or borrowing from anyone. A strong portfolio is the difference between wealth on paper and wealth in your pocket.

I’m not saying your home isn’t valuable. Of course it is. And I’m not saying you shouldn’t enjoy the fact that it’s appreciated. But there’s a big difference between your home being part of your financial picture and your home being your entire financial picture. Too many people conflate the two and don’t realize it until they’re sixty-five and trying to figure out how to turn their split-level house into a monthly income stream.

The smartest thing someone approaching retirement can do is take an honest look at where they actually stand. Not where they feel like they stand, not what they assume based on their home’s market value, but where the numbers actually put them if they had to retire tomorrow. That means looking at what’s liquid, what’s generating income, and what’s just sitting there looking impressive on a balance sheet. Because a beautiful home is a wonderful thing, but it won’t write you a check every month when you stop working. n

Jack Strulowitz is a Financial Advisor at Bernath & Rosenberg in Cedarhurst, NY, where he helps high–net worth individuals and families manage their investments and build comprehensive strategies for retirement, tax, and estate planning. For questions or to schedule a consultation, please contact [email protected] or 847-962-3352.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC.