In my earlier posts, I suggested that most people plan on retirement income from 5 main sources: 1) a pension, 2) Social Security, 3) home equity, 4) savings and 401ks, and 5) investments.
Prior to the industrial revolution, the family homestead provided housing security for most Americans. Home ownership decreased as people moved off of the farm into the cities near the factories. Many families rented rather than owned homes. Many lost their homes during the great depression. The boom following World War II, combined with the migration to the suburbs, increased the ability for families to own homes.
Reasons People May Lack Home Equity for Retirement
Nevertheless, many people will find themselves approaching retirement still paying on a mortgage. Several factors contribute to why people still owe on their home as they approach retirement. I do not judge why you may not have any home equity. I merely share possible reasons:
- The recent burst of the housing bubble leaves many homes worth significantly less than anticipated
- Decreased home values in your neighborhood for several reasons
- You moved frequently to follow job transfers and job changes. As a result, you could not live in one home long enough to build equity
- Home equity loans or frequent refinancing that added debt to your mortgage leave you with no equity rather than a paid off mortgage
- You decided to put your money to work rather than just sit doing nothing.
- Financial experts told you to maintain a high loan balance to reduce taxes
- Frequently upgrading to larger and costlier homes
- Taking out a second mortgage to cover a debt or business failure of children or other family members
Whatever the reason, and without casting blame, many people will not have home equity to help fund their retirement.
Join me next Monday as we analyze how savings and 401Ks may prevent retirement
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