For Mark Roberts’ Use: 

The Great Recession ended in June 2009, but home prices have yet to rebound to their former levels. The combination of lower home prices and an increase in borrowing during the recession slashed home equity in the U.S. by more than 60 percent. Many homeowners have found themselves “underwater”, owing more to their mortgage companies than their homes are worth. Even though housing prices are expected to eventually recover, it’s still a good idea to leave your home’s value out of the retirement equation. When planning for retirement, you shouldn’t rely on the equity you hope to have in your house.

Factoring your home’s value into your retirement equation could lead you to underfund your retirement. Instead, remember to think of your housing as a personal choice, and keep in mind that the decisions you make about living arrangements could change later. Some retirees count on downsizing from the larger family home as a way to live more frugally in retirement, but this could backfire for several reasons. If you need to sell your home before the real estate market recovers, you may not make as much profit as you had expected. The fees associated with selling your home, as well as moving expenses, can also eat into your profit considerably.

Other retirees choose to utilize a reverse mortgage, in which a bank grants a loan that does not have to be repaid as long as you continue to reside in the home. Upon your death or a permanent move to a retirement home, the house is sold to repay the loan. While this sometimes works well enough in certain situations, the strategy has a few downfalls. There are considerable fees associated with this type of loan, and you usually receive much less than your house is actually worth. If you are forced to sell the home at some point to repay the loan, you will be vulnerable to the current conditions of the housing market. This type of retirement plan can be very uncertain, and it underscores the fact that relying on your home’s value is not a good idea when making retirement plans.

Formulating a solid plan with a financial advisor ensures a more comfortable retirement. By leaving your home’s value out of the plan, you won’t be left vulnerable to uncertain housing market conditions or be forced to sell your home against your wishes.