Despite some well-publicized problems in the mortgage market, Americans over the age of 61 are flush with home equity — more than $4 trillion worth.

In this new age of retirement, when most ordinary individuals must become financially independent in order to retire, it can be tempting – comforting, even – to view your home as part of your retirement portfolio. Although downsizing or using a reverse mortgage to free up home equity can be appropriate for some older retirees, planning to rely on your home to fund your retirement is a corner you may not want to paint yourself into.

Reasons Not to Risk the Homestead

Profitable real-estate transactions are largely dependent on timing. Whether you can get the price you expect will depend in part on the current real estate market. If you need to sell during a down cycle, you might find yourself postponing retirement or making do with less income until conditions improve.

Planning to tap your home equity could create a false sense of security, possibly leading you to underestimate what you need to save for retirement. Better to leave your home out of the retirement-needs equation and think of it instead as something to fall back on if the unexpected were to happen.

Finally, you will still need to live somewhere. If you want to relocate after you retire, that’s great. But don’t assume you will be able to take a chunk of cash out of the profits from a home sale and still have enough to buy another place. There’s no telling what sort of transition costs or taxes you might face, and you’ll probably be glad you have every dollar from the sale to aid your relocation.

Be careful about subjecting your home to the same risks as your retirement savings. When you reach retirement age, you may be glad you kept them separate.

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