The Home Equity Retirement Plan

Posted by: Sophie H. | Mar 28,2008


I’ve seen it happen a lot.  Retirees do not take debt at all seriously because they’re nearing the – shall we say – completion of life.  You might look at articles (such as those written on this site) warning you that credit card debt can linger for 30 years if you’re not careful.  Well, if you’re 75 years old, the prospect of credit card debt when you’re 105 probably doesn’t seem like such a pressing problem.  

The same goes for a mortgage.  If you’ve paid off the bulk of your mortgage and you’ve built up equity, many retirees justify borrowing off of equity for the remainder of their years.  After all, they’re not going to have to deal with the consequences of paying off that mortgage again in the future.  

Granted, that does make some sense, and if you’ve spent years paying off a mortgage, you’ve earned the right to borrow off of equity.  But this should only be part of the solution.  You can make that same equity last longer if you pay off your debts with the equity and you use the equity to invest.  Just living off of equity alone is only part of the solution and equity is not limitless.  

You’ve also got your descendents to think about.  While it’s true that you personally won’t have to deal with an unpaid mortgage years down the line, do you really want the bank to sell of your home only to pay off the mortgage?  Your home is a huge asset and it will be a major asset to your children and grandchildren.  

Retirement doesn’t mean retiring from financial responsibility.  It doesn’t mean stopping work altogether.  In fact, now that you’re not going to a daily job, you’ve got time to work on financial management.  Yep, it’s not as fun as golf, but it’s still necessary.  So borrow off of equity but don’t do it at the detriment of your financial portfolio.  

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