I’ll tell you what finally changed my thinking. Our goal is first, to not be a burden on the kids. Then, we’d like to leave something to them. My concern is some kind of unexpected health-case expense.
Running the numbers, there was a 99% chance all the scenarios would work and we could leave in the worst-case scenario $800k to the kids and in the best-case scenario it would be well over $10M. That’s if we live until 100. We aren’t both living to 100. So then I started thinking … if we can leave millions of dollars to our kids then that’s millions of dollars we could spend on our health care. I don’t know why, but that made such a difference to me. Intellectually, everyone one and all the data says we are good. Start believing it, YDS!
I have a friend who just retired last year after getting laid off at 64. He took his severance package and is using almost all of it to do major renovations on his home. His home is his major asset, he has a mortgage on it, and he wants to live there forever (and he is lives alone and is childless). I keep scratching my head on this one. How will he keep up the home maintenance, real estate taxes, and mortgage payments, when he just used up all that cash? I couldn’t sleep at night in his shoes!
Maybe he has other financial assets to cover the rest, 401K, brokerage accounts, inheritances? If he’s not married and is childless, he’s probably got far more money in his accounts than the rest of us who have had kids.
We definitely figure out house into our net worth. We have to have a roof over our heads, but we don’t have to have this expensive roof. If the rest of our assets dropped precariously, we’d sell this house and live far cheaper.
I know this is not true. His only big asset is the house. He was unemployed at one point and almost lost the house when he could barely pay the mortgage. He has always been a big spender, at one point got into credit card debt of like $20,000 and was cleaning houses to make money to pay it off. If I hadn’t had a kid, I would have lots more money, but it doesn’t apply in this case. He did get a small inheritance after his father’s death, but he spent that on putting in a big expensive pool.
Of course, but we consider any potential gain from monetizing a more expensive property for a lesser one to be a unknown future windfall, not part of the number we we used as our retirement goal. Our house is a significant asset that, financially speaking, is part of our overall net worth, no argument there, we just ignored it in calculating what we needed to retire on. Heck, we could sell our primary house and live comfortably at our cabin on SS alone, but we have no plans to do that.
I retired at age 58 (after hubby turned 65), and I definitely had a tough time with the mindset of switching from Saver to Retiree. Our FA assured us that is is a really common to feel that way.
My husband has a really helpful one page summary of all our assets at Schwab with the FA and elsewhere. The bottom line net worth does include our house** But… we really don’t use that net worth number for any planning or calculations (except to feel good when the figure goes up, due to stock market and real estate increases ). Our pensions are low, so our planning focuses on our cash flow needs and the best way to utilize other assets (and eventually SS) to derive our “monthly paycheck” that supplements the pensions.
** Our net worth summary does not include our cars, for reasons similar to others omitting house. That is OK for now because both are 10+ years old. But once we use cash to buy the next car, I think we should considering adding an “cars” line item.
We don’t count the depreciating value of cars either, but our financial plan does include a cash purchase of a new car every ten years, although we drive them 'til they die and none have lasted less than ten years.
We didn’t really consider our house as part of our net worth. We recently sold it and now it is part of our cash and is included. We are renting for the foreseeable future and currently don’t own any real estate.
I can see arguments for and against home value in net worth…. just depends on how you eye that figure. On advantage for us to include the house is it helps us (and our FA) to see that IF we someday needed to sell he house to downsize/simplify or go into assisted living… there is significant house equity (it is paid off) available to help cover that. But as I said above…. mostly we concentrate on the most effective way to cover our monthly expenses including lots of travel (and the occasional car purchase)
Yikes, that sounds like someone who will have a tough time in retirement. Hope he ends up selling his house and downsizing before they take it from him and he has nothing.
One’s home creates expenses whether there is a mortgage or not. Being high value and/or being larger tends to create more expense. Higher real estate taxes, higher utility bills (for a larger place generally uses more energy than a smaller one), and higher insurance. Obviously one needs shelter but housing (whether owned outright, mortgaged, or rented) sucks cash rather than generating it.
We are selling our Florida condo and relocating for a variety of reasons, but as I’ve written before, being able to take the appreciation tax-free is certainly a factor. I can’t do that with my stocks. We are under contract to buy something far less expensive than what we will get out of our place here. We won’t be beach-front anymore, but our cost of living related to home ownership (real estate taxes, insurance, HOA fees) will be far less. We are going back to a state that has a state income tax, but it’s still going to be a net financial win for us. And, the beach is too sandy for me anyway. I’ll miss looking at it, but it’ll be okay.
As far as one’s home being their biggest asset - my college roommate’s father-in-law who owns a home in Orange County, California keeps doing reverse mortgages. I don’t know how those work other than having a vague sense that they are a dumb idea. I guess the reverse mortgage company bears the risk of the real estate market tanking?
My father’s only big asset was his house. He did a reverse mortgage for many years. Then when he moved to assisted living he sold it and used that money to pay for his care.
There is no argument – your home IS part of your net worth. Period.
The issue is whether or not you consider it part of your retirement goal number. For example, if you decide you need to have two million to retire, and your home is currently worth one million, and you have one million in investments, have you met your goal? Can you retire? Or, do you feel you need to grow the portfolio to two million ignoring the fact that your home has future resale value? Does your retirement number rely on the future sale of your property?
Sigh of relief. I finished doing our federal taxes. Now need to figure out how to pay money to our state for some capital gains we’ve had last year. Seriously, they don’t make it easy. Ugh.
We did a Roth conversion this year because it was our lowest income year. And we had solar panels installed and got quite a large tax incentive to do so. Our refund is almost $12,000. That will never happen again, nor should it!
