Maybe it’s time to think of a house as a home and not necessarily the silver bullet to finance your golden years.
For a while, some retirement experts had suggested that baby boomers might raise cash for retirement by selling their homes and moving to a smaller house or lower-cost area.
But the reality is that we’re not always looking at easy money – and that has to be more than obvious in Michigan as folks pack it up and retire from Ford Motor Co., General Motors Corp., the Chrysler Group and other auto-related companies.
Home sales have slumped for more than a year in Michigan. Prices for existing homes were down 7.4 percent in Detroit in the last three months of 2006, compared with the comparable time in 2005.
Easy cash? Not now.
Many savers could be relying too heavily on their home equity for retirement, according to a new report by the Fidelity Research Institute.
More than 80 percent of Americans older than 65 own homes, including vacation homes, worth a total of $3.95 trillion. Roughly 30 percent of the group’s total wealth is tied up in housing.
“This is a significant asset for most Americans,” said Guy Patton, executive director for the Fidelity Research Institute.
It is not a simple asset to unload.
Some retirees find it too emotionally draining to sell the family home. Others risk selling property during a slump. And downsizing does not always generate as much money as one might hope.
“Our point is you shouldn’t be thinking of real estate as a primary source of income in retirement,” said Van Harlow, managing director of research for the Fidelity Research Institute in Boston.
Consider a 62-year-old couple with a home worth $400,000. They have no mortgage on that house. How much extra income could they pick up if they sold the house? Would you imagine roughly $5,000 or $6,000 a year? Or $400 to $500 a month? The Fidelity research report estimated that the couple could sell the house and buy a smaller one for $300,000 in the same general area.
After costs, the couple would have about $77,000 to invest in an inflation-adjusted lifetime annuity. They could generate $4,830 a year, including $3,050 from the annuity and about $1,780 in lower taxes, maintenance and insurance on a less-expensive home. This assumes the couple would live to age 94.
It might be possible to generate more income but not a lot more.
Bob Bilkie, president of Sigma Investment Counselors Inc. in Southfield, Mich., said he’d estimate that an investor could opt to put the $77,000 into a 30-year U.S. Treasury at 5 percent and pick up closer to $3,850 a year . At the end of 30 years, the investor would still have that extra $77,000.
