How Home Ownership Affects Retirement Readiness

Owning a home makes some people feel more confident about their retirement prospects — but some experts say that may be a mistake.

About 37% of workers surveyed — including those who work part-time or full-time, are self-employed or own businesses — say they are “ahead of schedule” (7%) or “on schedule” (30%) with their retirement savings, according to the Your Money Retirement survey by SurveyMonkey and CNBC.com.

Among those who said they were ahead of schedule or on time, 42% said starting early on retirement savings helped them get ahead. Other factors that contributed to their readiness included no debt (38%) or no debt (37%) and home equity or ownership, the report found.

The survey was conducted among 6,657 adults, including 2,603 ​​retirees and 4,054 working adults, in August.

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But homeowners' confidence in the wealth their homes provide may be misplaced, according to Angie Chen, a senior economist and associate director of savings research at the Center for Retirement Research at Boston College.

“Homeowners are more likely to be overconfident about their retirement readiness,” Chen said. “There are a lot of misconceptions about how people assess whether or not they are ready for retirement.”

However, owning a home can help provide other benefits in retirement, says Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, California.

Here's what you need to know.

The Center for Retirement Research’s National Retirement Risk Index measures the share of working-age households at risk of not being financially prepared for retirement. When comparing individual households’ assessments to the 2023 National Retirement Risk Index, the Center for Retirement Research’s analysis found that 28% are “not sufficiently concerned”—that is, they believe they are not at risk, when the index predicts they are.

“People who own homes but still have significant debt on their homes are more likely to be overconfident or not worried enough,” Chen said.

To better assess your retirement readiness, Chen said, “It’s important to consider not only the value of your home, but also how much you have borrowed and how much you have left.”

For example, if you buy a $500,000 home but still owe $400,000 on it, your equity is actually $100,000, she said. Experts say tapping that equity isn’t always cheap, and there can be risks in borrowing against your home.

“Housing is not really liquid,” Chen says. “You may feel happy having this huge asset, but you can’t consume it in retirement. You can’t spend it in a way that allows you to spend and consume other types of savings.”

On the other hand, owning a home can have some advantages, according to experts.

Whether or not you're building equity in your home as part of your retirement preparation, owning a home can have other financial benefits in retirement.

“Home ownership is divided into two parts,” said Sun, a member of CNBC’s Financial Advisors Council.

First, you build equity. When you sell the property — for example, if you decide to downsize after you retire — you can access that money in a lump sum, Sun explained.

In addition, while you own the property, you “have a controlled cost of housing” which may include a fixed mortgage payment, Sun said.

Although homeownership costs such as homeownership insurance and property taxes have increased in recent years, you may qualify for senior rates on utilities by the time you retire, Sun said.

“A lot of my clients, as they get older, also become eligible for senior rates on their utilities,” Sun said. “So some of their costs may go down as they get older.”

Although the home isn't negotiable, you may be able to cash in on the value of your home if you need to, experts say.

“In most cases, for retirees, they look at stocks as their emergency fund,” Sun said.