Many people who are working worry a lot about having enough money saved for retirement. A 2024 CNBC poll done with SurveyMonkey found that an alarming 53% of Americans think they are behind schedule on planning for their retirement.
You might be focusing on assets that you can see, like your bank accounts and business portfolios. But you might be missing out on an important asset that you will have in the future: your home.
Mortgage as an asset for retirement
One of the founders of Bluepoint Wealth Advisors and qualified financial planner Jason Stein told CNBC, “People see the money in their bank.” They can see the money in their 401(k), trading account, and individual retirement account (IRA). Most of the time, they don’t think about how much money is building up in their home.
Financial experts say it might be a good idea to think of your mortgage not only as a cost but also as an important part of your retirement savings.
It’s not always true that mortgage payments are a burdensome cost. Winnie Sun, co-founder of Sun Group Wealth Partners, says that they can be seen as a good form of debt.
- Equity Growth: Each mortgage payment increases your home equity, which can be a substantial asset by the time you retire.
- Property Appreciation: Over time, your home’s value is likely to appreciate, adding to your net worth.
- Investment Diversification: Including real estate in your retirement portfolio can provide diversification, reducing overall risk.
Finally, it’s important to save for retirement in standard ways, but don’t forget that the value of your home can also be a big part of your plan. If you change how you look at it, your mortgage won’t just be an investment, but an important and helpful part of your financial future.
When it comes to debt, some types are bad and some are good. Sun said, “It’s clear that some debts are bad for you, like credit card debt and other similar things.” Then there’s debt that can be paid off. It’s clear that one is student debt. Then the house payment.
Understanding Healthy Debt for Retirement
There are some kinds of debt that are good for you because they help you meet basic needs like housing or schooling. Most of the time, these debts have fixed rates that make payments more stable and easy to handle.
Types of Healthy Debt
- Student Loans: These loans are an investment in your future, potentially leading to higher earnings and career advancement.
- Mortgages: This type of debt helps you acquire a home, providing stability and potential long-term financial benefits.
Breaking Down Mortgage Payments
Stein says that your mortgage cost is mostly made up of two parts: the interest and the loan’s capital. The real cost of the loan is the interest, which you can’t get back if you sell your house. But the money that was used to pay down the debt can be gotten back.
Regaining Value from Your Mortgage
It’s possible to get some of the money you spent on your mortgage back when you sell your home, even though there are some costs involved. This means that paying down your debt is an investment in your future finances that will pay off over time.
To make smart financial choices, it can be very helpful to know the difference between good and unhealthy debt. You can make your financial future safer by focusing on bills that will help you in the long run.
Not only do you get a place to live when you own a home, but you also make a smart investment in your future. Sun says that your home can make you save money, which will pay off in the long run.
The Dual Benefits of Homeownership
Even though renting might seem easier, there are many important reasons to own your own home. When you have a fixed-rate mortgage, you pay the same amount every month. This security is very different from renting, where monthly payments can change.
Building Your Own Equity
Sun says, “Owning a home isn’t the same as having an investment property, but it does have benefits.” The rent you’re paying is for your own home, not someone else’s. In other words, you have the chance to build equity in an object that could go up in value over time.
Preparing for Retirement
The decision to sell your home during retirement becomes a good financial move as the value of your home rises. You won’t have to worry about not having enough money for retirement if you sell your house and get the money you need.
- Fixed-Rate Mortgage: Provides stable monthly payments.
- Equity Building: Every mortgage payment contributes to your own investment.
- Appreciation: Potential increase in property value over time.
- Retirement Planning: Selling your home can add to your retirement funds.
Your home isn’t just a place to live; it’s also a valuable investment that can grow and help you in the future. If you know about these perks, you can make smart choices that will be good for your long-term financial health.
An important part of financial planning is setting up automatic payments to your retirement accounts, like a 401(k).
Unveiling Hidden Savings
Stein says, “Every year you probably save more than you think.” „This is because you’re paying off a loan amount that you can get back when you sell the house, which may have also gone up in value.
Enhancing Your Retirement Cash Flow
Withdrawals from your retirement account and Social Security payments are likely to be a part of your expected cash flow in retirement. But these might not be enough to support the way of life you want. Stein says you might not want to stop buying things you don’t have to, like trips. This is when you might want to sell your house.
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