I Have a Lot of Equity in My Home. Am I OK Without Retirement Savings?

For many seniors, their home is their largest financial asset. If you’re a homeowner who’s still deep in the throes of their working years, there’s a decent chance that by the time you’re retired, you’ll either own your home outright or have a nice amount of equity in it. And home equity is something you can tap in different ways when a need for money arises.

U.S. homeowners today have large amounts of home equity, generally speaking, due to the hot housing market. As of 2023, the average homeowner was sitting on $274,000 in equity, up from $182,000 prior to the pandemic, says CoreLogic.

Your plan may be to take a low-key approach to retirement savings and fall back on your home equity instead. But that’s a decision you might sorely regret.

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You can’t rely on home equity alone for retirement

There’s nothing wrong with looking at home equity as a backup plan of sorts — meaning, something you can tap in a pinch should that need arise. But home equity should not take the place of retirement savings.

First of all, getting access to your home equity isn’t a given. If you have poor credit during retirement, for example, that could stop you from accessing your equity via a home equity loan.

Also, while a reverse mortgage may be an option during your senior years, it’s not necessarily one you want to fall back on. There can be high costs associated with putting a reverse mortgage in place, and then you start to lose equity in your home as you receive those payments. You also have to commit to living in your home to be able to benefit from a reverse mortgage, and that’s something you may not want to do later in life.

For these reasons, it’s best to do what you can to save for retirement so you have access to steady income during your senior years. And thankfully, building a nest egg may be easier than expected.

It doesn’t take a ton of money to build a lot of wealth

If you wait until your 40s or 50s to start saving for retirement, then you may find that it’s a struggle and that you have to part with a lot of money every month to make a nice dent in your nest egg. But if you start earlier on, you may find that smaller monthly contributions to an individual retirement account (IRA) or 401(k) go a long way.

Over the past 50 years, the stock market has averaged an annual 10% return. If you’re saving and investing for retirement over a longer period, there’s a reasonable chance you’ll score a comparable return in your portfolio.

So let’s say you start funding a retirement plan with $200 a month at age 30. At that 10% return, by age 65, you’ll be looking at $650,000 if you make $200 monthly contributions that entire 35-year period. That could make for a very comfortable retirement — and one where you’re not reliant on tapping home equity to cover your expenses.

There’s nothing wrong with taking comfort in the equity you have in your home and using it as a backup plan for emergency retirement expenses. But your home equity should not take the place of actual retirement savings. Rather, make an effort to build a nest egg steadily over time so you can cover your senior living costs with relative ease.

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