Investing too much in your family home could cost you a carefree retirement

If you rely on the value of the family home to fund your retirement, it’s likely that all or much of your savings will be tied up in this one asset.  Unless these savings can be released through downsizing or a reverse mortgage, your family home may become more of a liability than a conduit to your retirement lifestyle of choice.

Relying on selling the family home to fund your retirement may appear to be an ideal investment plan.  But should Australia follow global housing trends pushed by an ageing population and sell up?

Selling up may prove more difficult than you imagined and could leave you with less money than you anticipated.

In her article “Baby Boomer housing bust: Coming to Australia,” (BRW:19/04/14) Nicole Gurran says “the latest (issue) concerning the US is a looming glut of unsellable suburban homes as Baby Boomers seek to downsize” and relocate to the convenience of the cities.  She says, “They’re calling it the great senior sell off and it’s scaring suburban America.”

If most of your equity is tied up in the family home, and you have no significant savings in the form of superannuation, relying on the sale of your home, sub-letting or mortgaging it to raise cash to fund your wants and needs in retirement, may prove challenging.

Over the years your investment in the family home has been far greater than simply dollars and cents, there has been considerable emotional investment too.  Often no amount of reasoning or logic can overcome the ties that keep many people from downsizing or restructuring their finances in preparation for the next stage in life.

As difficult as it may be, It is important to face up to the practical requirements of life as you grow older and at the very least, begin a conversation around the various scenarios and the likely impacts of one plan or another.

With reduced income, but unchanged outgoings, the family home can feel like a liability, costing you more than you can afford and significantly affecting your cash flow.

It is not unusual to overlook the additional costs of utilities, repair, rates, and general maintenance when determining how much your home actually costs you as measured against its perceived value.  Yet, if the important maintenance is not attended to, you could find yourself needing to spend a significant amount before it can be sold.  Suddenly your golden years appear weighed down by unwanted expenses.

As if that’s not enough to worry about, what about unplanned events.

You can’t afford to underestimate the impact of an unexpected illness, a cash emergency or the necessary transition to care.  With all your cash invested in one asset your options in an emergency can be limited.

You could mortgage your home to access money but borrowing at this later stage of life can add further pressure to an already emotional time.

Or you could sell it.

But selling in a hurry may mean settling for a price that is less than your home’s true value, especially if significant spending is needed to “fix-it-up” for sale.  Whichever course of action you choose, decisions made too late will mean that your beloved family home can become a liability.

Now is the time to be prepared for all possibilities.

Talk to your bank, accountant or discuss your retirement options with your Collins Mann financial adviser.  Ask about our 6-step questionnaire that will help you to identify what’s important.

Understanding your options is central to enjoying a retirement of choice not compromise.  For guidance and advice, please call us on 07 3251 3201.

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