If you’re a retiree and you’re trying to square the circle of rising costs, longer lifespans, more expensive medical care and turbulent markets, don’t be afraid to run the numbers on your biggest investment.U.S. house prices are now so high that it is almost impossible for seniors not to ask themselves the obvious question: “Should we cash in, invest the money, and rent?”
Our simple chart, above, compares average U.S. home prices with average U.S. rents, going back to 1987. The bottom line? House prices are very high at the moment compared with rents — again, prices are about where they were in 2006-07. If borrowing costs drive down real-estate prices, seniors who hold off on selling may miss out on gains they may never see again. After the last housing peak, in 2006, it took a full decade for prices to recover fully. Those who sold when the going was good had the chance to buy lifetime annuities at excellent rates or to invest in stocks and bonds that overall rose about 80% over the same period.
“My general advice for clients is that owning a home with no mortgage in retirement is the best scenario, as housing is typically the highest cost we pay monthly,” says Adam Wojtkowski, an adviser at Copper Beech Wealth Management in Mansfield, Mass. “It’s not always the case that it works out this way, but if you can enter retirement with no mortgage, it makes it a lot easier for everything to fall into place, so to speak, when it comes to retirement-income planning.