Home Ownership Matters

Education / News

retirement-planningRetirement; a topic that the young know little of, and the old know too much about. Whether you fall into the first category or the latter, one value that remains constant is the importance of home ownership and how it can affect your retirement plans. In fact, homeownership is considered to be the single most important financial decision related to retirement. For you 20 and 30 somewhats out there, it may seem as if starting to set money aside for both home ownership and retirement is pointless, as you need the money for that Porsche and court-side tickets. However, retirement is going to hit sooner or later; are you going to be ready?

To begin, lets take a look at some facts related to retirement savings in the U.S.

  • Only 42% of private sector workers age 25 to 64 have any pension coverage in their current job. That’s lower than the 50% who had pension coverage back in 1979.(Source: Center for Retirement Research)
  • 30% of workers in a 2012 study reported that they had less than $1,000 in savings and investments. (Source: Employee Benefit Research Institute)
  • A 65-year-old couple retiring in 2012 is estimated to need $240,000 to cover medical expenses throughout retirement. (Source: Fidelity Investments)
  • One-third of households end up entirely dependent on Social Security; for low earners that portion is 75%. (Source: Center for Retirement Research)
  • 21% of workers covered by 401(k) plans choose not to participate. (Source: Center for Retirement Research)
  • A typical worker should accumulate about $363,000 by the time he or she retires. According to the Fed, a typical household approaching retirement had 401(k)/IRA balances of only $120,000 in 2010, far short of the projected amount for the individual. (Source: Center for Retirement Research)
  • 60% of workers report that their total household savings and investments, excluding the value of their home and any defined benefit pension, is less than $25,000.(Source: Employee Benefit Research Institute)

So, less than half of workers today have any pension coverage, and more than half report that they have less than $25,000 in assets, excluding their homes.  Now consider these facts:

  • Home Equity represents 2/3 of the assets of those nearing retirement (Society of Actuaries)
  • Average Equity of US Homeowners is 41% (US Federal Reserve)
  • 60% of homeowners have no mortgage at all (US Federal Reserve)
  • Average US Home Value is $180,600 (Case-Shiller Home Price Index)

The facts are on the table; homeowners have far greater assets in retirement than their non-homeowner counterparts. In addition, not only do homes have the potential to grow in value, but most importantly, they are depositories of savings created through the disciplined repayment of mortgage loans.Though your gut feeling may tell you that homeownership is a risky investment, it is seen here that the pros far out weigh the cons, all while setting the individual up for a financially stable retirement.