This just in: owning a home is so 1990. Wait, scratch that. Owning a home, paying off the mortgage, and then dying in that home, is so 1990. Want your financial plan to look more attractive? Start planning now to sell later.
After recent meetings with two retired couples, it really hit me that people today aren’t as attracted to the idea of staying in their home forever as couples were even ten years ago. They want simplicity, portability, more income, and less stress around the possibility of outliving the nest egg. I can’t recall the last time a client told me that one of his most cherished goals was to leave his house to a grown child.
Investors get mixed messages from financial planners on the topic of the home. Is it a lifestyle asset or an investment asset? To that, I say, yes and yes. Owning a home can be an awesome way to build wealth that can be enjoyed later, but only if you sell the darn thing at some point.
Some quick and oversimplified math:
Imagine you’re approaching retirement age, have a home worth just over $1 million, and the annual non-mortgage housing expenses that you wouldn’t incur as a renter (taxes, insurance, maintenance), run about $20,000. Imagine you could enjoy life just as much renting a great house or apartment for $50,000 per year (a friend of mine pays less than $4,000 per month for an ocean-front pad with a ladder to the sand – not exactly a quality-of-life sacrifice). The additional costs associated with renting are $30,000 per year, but if you sell the house, you can add $1 million to your investment portfolio, from which you can cover ALL expenses. If you estimate a reasonable and sustainable withdrawal from this portfolio to be about $50,000 per year, and subtract $30,000, that’s an extra $20,000 of annual income. Still with me?
Two big questions to ponder:
1. Would you rather have the feelings that come with home ownership, or an extra $20,000 per year?
2. What would you do with an extra $20,000 per year?
- Travel more and fly business class?
- Engage more actively in charitable giving?
- Reduce the risk in your investment portfolio?
- Build up cash reserves in case you need long-term care later?
The popular notion of “dying broke” is not about being broke, and then dying. It’s about enjoying the fruits of your labor and living a rich life until your final breath. Selling a house while you’re still healthy and active can bring you one step closer to this goal.
Every person will have unique circumstances. I encourage you to have this conversation with a Certified Financial Planner™ so that all the dots can be connected. Bottom line: The equity in a house can either be carefully converted to income, or it can be an inheritance for someone else. I like giving stuff away too, but it’s so much more fun to do it while alive. Call me old fashioned.
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