Research shows most people do not have enough money saved to retire comfortably or safely. In fact, the reality is Americans don’t save enough for retirement. To get a better picture of what we’re dealing with, let’s look at some numbers:
- 40% of Americans age 55-64 have no money set aside for retirement
- Of those in that age that do have retirement accounts – the median balance is $120K according to the Federal Reserve
Overall, the median retirement account balance for all working-age households in the U.S. is $3,000 and $12,000 for near-retirement households, according to the National Institute on Retirement Security.
However, you wouldn’t know how ill prepared most of us are to watch our friends, neighbors, and family living so well. It seems most people have nice homes, filled with nice stuff, driving nice cars, and taking nice trips. Could we be living too well today and doing far too little to prepare for retirement?
How about you? Where do you stand?
Further, we have moved from an employer-managed retirement environment to an employee-managed environment. Aside from an overstressed social security system, we are largely on our own for retirement planning. You have to be prepared to take care of yourself.
Now let’s look at how our housing choices directly affect our saving for retirement. The norm has become that we spend the maximum amount a bank will lend us because we are focused on luxury and believe those depreciating finishes are actually an investment. America’s current views on home ownership is the product of super low interest rates and mass delirium about the importance and value of houses. Unfortunately, this drastically undermines one’s home as a tool for building long-term value and savings for our future.
Too often we use our home’s equity for better living ‘today’ and thereby abandon the ‘nest egg’ savings potential. Now I will give you an important piece of information – Pulling the money (equity) out of your home for upgrades is a bad idea. You are only withdrawing from your retirement savings to purchase and install depreciating amenities for your house.
In today’s society, nobody pays off their house anymore, on the contrary, we refinance for better rates (and a little extra cash for fun). It didn’t used to be this way and this shift in thinking regarding home ownership is part of the reason our retirement savings are so inadequate.
Your home is a simple investment, a long-term inflation adjusted and leveraged savings account. It can and should be an important part of your retirement plan. Let’s work towards restoring the original ‘nest egg’ mentality to our homes. Here is my simple three step system for your incorporating your home into your retirement nest egg…
- Settle in: Don’t move so much – get comfortable. “What are 4 walls anyway… they are what they contain” – Under the Tuscan Sun
- Settle down: Stop spending money on frivolous luxury items. Think a little more modestly about spending money on your home.
- Settle up: Pay extra, pay it off. “There are two ways to conquer and enslave a nation. One is by the sword… The other is by debt.” – John Adams, 1826
It is time again to treat our homes as our nest egg for long-term financial prosperity. Stay longer, spend wiser, live a bit more modestly… prudent home choices will once again be the cornerstone of your financial future.