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Owning a home makes some people feel more confident about their retirement prospects — but that may be misguided, some experts say.
About 37% of workers surveyed — including those with part-time or full-time positions, or who are self-employed or business owners — say they are “ahead of schedule” (7%) or “on schedule” (30%). their retirement savings, according to the Your Money Retirement Survey conducted by SurveyMonkey and CNBC.com.
Of those who said they were ahead or on schedule, 42 percent say starting retirement savings early helped them get ahead. Other factors that contributed to their readiness included having little to no debt (38%) and equity or property (37%), according to the report.
The survey involved 6,657 adults, including 2,603 retired adults and 4,054 working adults, in August.
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But homeowners’ wealth confidence in their home’s value may be misplaced, according to Angie Chen, senior research economist and assistant director of savings research at the Center for Retirement Research at Boston College.
“Homeowners are actually more likely to be overconfident about their retirement readiness,” Chen said. “There’s a lot of misconception about how people assess whether or not they’re ahead in retirement.”
But owning a home can help bring other benefits into your retirement years, said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, California.
Here’s what you need to know.
“Overconfident or not worried enough”
The Center for Retirement Research’s National Retirement Risk Index measures the share of working-age households that are at risk of being financially unprepared for retirement. When comparing individual household ratings to the NRRI in 2023, a CRR analysis I establish 28% are “not worried enough” — meaning they think they’re not at risk, when the index predicts they are.
“People who own homes but still owe a lot on their homes are much more likely to be overconfident or not worried enough,” Chen said.
In order to better assess retirement readiness, “it’s important to not only look at the value of your home, but also how much you borrowed,” Chen said, and how much you still owe.
For example: If you bought a $500,000 home but still owe $400,000 on it, your equity is really $100,000, he said. Tapping into that equity isn’t always cheap, and there can be risks to borrowing against your home, experts say.
“Housing is not really fluid,” Chen said. “You might feel good about having this big asset, but you can’t spend it in retirement. You can’t spend it in a way that you can spend and consume other kinds of savings.”
On the other hand, owning a home can have some positives, according to experts.
“You have a controllable cost of housing”
Whether you factor home equity into retirement readiness or not, owning a home can have other financial benefits in retirement.
“Ownership is kind of two-fold,” said Sun, who is a member of CNBC’s Financial Advisor Council.
First, you build equity. When you sell the property — say if you downsize after you retire — you can access that money as a lump sum, Sun explained.
Additionally, while you own the property “you have a controlled cost of housing” that may include a set mortgage payment, Sun said.
While home ownership costs such as home insurance and property taxes have risen in recent years, you may qualify for superior utility pricing by the time you retire, Sun said.
“Many of my customers, as they get older, qualify for higher billing for their utilities,” Sun said. “So some of their costs could come down as they get older.”
Although a home is illiquid, you may be able to tap into your home’s equity if you need to, experts say.
“In most cases for retirees, they kind of look at equity as an emergency fund,” Sun said.
