Owning a home can give some people confidence about their retirement prospects, but experts warn that this confidence may be misplaced.
According to the Your Money Retirement Survey, conducted by SurveyMonkey and CNBC.com, about 37% of workers – including those who work part-time, full-time, are self-employed or own businesses – believe they are “ahead of schedule” (7%) or “on track” (30%) with their retirement savings.
Don’t miss:
Of those who feel they are on track, 42% attribute their progress to starting to save for retirement early. Other key factors contributing to their preparedness include little to no debt (38%) and home equity or ownership (37%).
The August survey included 6,657 adults, including 2,603 retirees and 4,054 working adults.
See also: The average American couple has this amount saved for retirement: How do you compare?
Angie Chen, senior research economist and assistant director of savings research at Boston College’s Center for Retirement Research, says homeowners’ reliance on the value of their homes as a source of retirement wealth may be misplaced.
“Homeowners are actually more likely to be overconfident about their retirement readiness,” Chen told CNBC. “There’s a lot of misconception about how people judge whether they’re ahead or not in retirement.”
Still, Winnie Sun, co-founder and principal of Sun Group Wealth Partners in Irvine, California, emphasizes that homeownership can offer other benefits during retirement as well.
Trending: This multi-billion dollar fund has invested in the next big real estate boom, For example, you can become a member for $10.
The Center for Retirement Research’s (CRR) National Retirement Risk Index (NRRI) measures the percentage of working-age households at risk of being financially unprepared for retirement. A 2023 CRR analysis found that 28% of people believe they are not at risk, despite what the NRRI says.
“People who own a home but still have high mortgage debt are much more likely to be overconfident or not worry enough,” Chen said.
Trending: This Jeff Bezos-backed startup lets you Become a landlord in just 10 minutes and you only need $100.
To get a good idea of how you’re prepared for retirement, Chen emphasizes the importance of looking not only at the value of your home, but also at the amount you’ve borrowed and still owe.
For example, if you bought a $500,000 home but still owe $400,000, your real equity is $100,000. Experts warn that tapping into this equity can be costly and risky, since borrowing against your home isn’t always easy.
“Housing is not liquid,” Chen said. “You may feel good about having this big asset, but you can’t draw it down in retirement. You can’t spend it so you can spend and draw down other savings.”
Trending: Founder of Personal Capital and former CEO of PayPal Redesigns traditional banking with this new high-yield account: start saving better today.
Experts also point out some advantages of owning your own home.
Owning a home offers financial benefits, even if you don’t account for the equity in your home for retirement. First, you build equity in your home. Sun said that when you sell the property, such as downsizing in retirement, you can withdraw that equity as a lump sum.
Additionally, while you own the property, you have a fixed cost of living, usually including a stable mortgage payment. Despite the rising cost of home insurance and property taxes in recent years, you may be eligible for senior discounts on utilities by the time you retire.
Although a home is not a liquid asset, experts say you can still tap into your equity if necessary.
“In most cases, retirees view their home equity as an emergency fund,” Sun said.
Read more:
UNLOCKED: 5 NEW ACTS EVERY WEEK. Click now to receive the best trading ideas dailyplus unlimited access to advanced tools and strategies to gain an edge in the markets.
Want to receive Benzinga’s latest stock analysis?
This article Ready for retirement? Think again as experts warn homeowners still paying mortgages are ‘much more likely to be overconfident’ originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
