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Explorer ○

Percentage of Net Worth in Home

A question for those in retirement: What percentage of your net worth is represented by the current value of your home? (For those of us with pensions, annuities, and/or S.S., let's include their present discounted value in our net worth.) What's the maximum percentage you would find comfortable, if you were tempted by a more expensive home? Not to bias the responses, I'll give my own figures after hearing some of yours.   

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Frequent Contributor

Re: Percentage of Net Worth in Home

 Around 5%.

"There seems to be some perverse human characteristic that likes to make easy things difficult.---Warren Buffett"

veni vidi vici vti
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Re: Percentage of Net Worth in Home

25%, with another RE property nearby.

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Re: Percentage of Net Worth in Home


@Tibbles wrote:

A question for those in retirement: What percentage of your net worth is represented by the current value of your home? (For those of us with pensions, annuities, and/or S.S., let's include their present discounted value in our net worth.) What's the maximum percentage you would find comfortable, if you were tempted by a more expensive home? Not to bias the responses, I'll give my own figures after hearing some of yours.   


              A lifetime of hoarding numbers on an investment statement doesn’t do much for me. Anything left goes to heirs or LTC. So in a depressed stock market currently we’re at about 25%. Thanks to low current rates about a 20% return in 7 years on a new construction in an upscale situation.

               Our final move closer to the kids in about 5 years will be to a smaller house in an even more affluent area. A house is off the books for LTC, along with a funeral trust, would be the reason to do this leaving an outside spouse with more assets if the situation ever arises. Taking our remaining investable assets down to 20-25 years of anticipated needs at that point hopefully will free up more cash. 

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Re: Percentage of Net Worth in Home

15%. That puts me in a 3000 square foot home overlooking the ocean so I have no interest in buying more; if anything, less. I don't think of a house in terms of a percentage anyway. My portfolio focus is to achieve my investment goals.

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Re: Percentage of Net Worth in Home

We are retired, living on Social Security plus income from our accumulated wealth in 403b RA, TIRA, and brokerage accounts. The 403b and TIRA contribute to our income via RMD's.

At this time we temporarily own two homes, both wholly owned with no mortgages outstanding. We pay property taxes on both homes. We're in transition to the newer one but stuck by the COVID-19 epidemic in our older one. The value of the two properties is about 14% of our total net worth.

At some point, but probably not before the COVID threat is nearly done, we will sell one of our homes, and at that time the remaining home would likely be about 10% of our total net worth. It wouldn't bother us if we had twice that percentage in our home, but that doesn't need to happen ever. We also have long-term care insurance.

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Re: Percentage of Net Worth in Home

Maybe 15% - but that is plenty.

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Explorer ○

Re: Percentage of Net Worth in Home

26% for us. We're retired and all "needs" and most "wants" are covered by pensions. 

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Explorer ○

Re: Percentage of Net Worth in Home

Steel --- What is "an outside spouse"  ???

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Re: Percentage of Net Worth in Home

Hi.

We have two, ME and SC. They are 12.5% and we live on pension plans. LTC is self insured and financed.

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Re: Percentage of Net Worth in Home


@Husker wrote:

Steel --- What is "an outside spouse"  ???


     Husband or wife. I’am not up to current laws in my state but as of 2017, the outside spouse can keep 100k which is higher now, a house, a car, funds in a preplanned funeral trust and their SS in assets. We put 25k for each family member in the trust. Expensive house and large funeral trust. The SS of the spouse in LTC goes towards those expenses in additional to all other funds before state medicaid takes over. 

      In the end it cost 38k for one parent for 8 months of LTC in 1999 and we exhausted all funds except the remaining funeral trust for the second parent in a facility that took medicaid as last resort, around 250k and all SS, for 2-3 years and 8 months of state support. Remember all medical supplemental insurance was paid by the outside spouse or by us out of their accounts also.
       
      This is the reason we went with higher risk higher rewatd investing for now to get way ahead of that situation if it ever occurs. It was a disaster, stressful and traumatic. etc. lol. If not there’s no downside as we see it.

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Participant ○○○

Re: Percentage of Net Worth in Home

23%

I'd like to sell and live like a perpetual tourist.

My wife prefers that we keep our home.

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Re: Percentage of Net Worth in Home

15%. I retired in 96' at 54 yrs. In 2012 we sold our home of 40 yrs and bought a bigger home. In 2017 we sold that home and bought a bigger home. We are on a lake that we watch lots of birds. So much for downsizing. We don't travel much or do much for entertainment due to some medical restrictions my wife has, so an enjoyable home is important to us. I still do my own yard work although it is getting harder. I'm strange in that I have always mowed lawns since 10 and enjoyed it. Find it peaceful. I will be real depressed if we must sell some day and move to a independent living community or such.

I am not including my pension or SS in the 15% as I'm not sure how to calculate that. The 15% also includes 80 acres out in the boonies that my kids, grandkids still enjoy, but my wife is no longer able to go there. We spent many a weekend there from 1980 to 2010 year round.

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Re: Percentage of Net Worth in Home

We bought two big houses in the same neighborhood in the late 80s,  Now the three families (son's and ours; daughter's with her kids) live there for many years. 

The house prices are in the luxury range; but all my big family living within walking distance is not only worth the price, but practically priceless.

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Explorer ○

Re: Percentage of Net Worth in Home

Many thanks for your responses. It gives me some perspective on my situation and options to know the choices and outlooks of this financially reflective community. All I managed to find on the internet were thoughts on how much of a mortgage a working person can afford, nothing on how much of a retiree’s net worth might reasonably be allocated to a (probably mortgage-free) home. The choices you’ve collectively reported span quite a range, from 5% to 30% or more, though some didn't include the present discounted value of pensions in their net worth. My house comprises about 12%, and I’m tempted by a low maintenance (but high HOA-fee) mid-rise condo, which would push the figure to 15% or 16%. (I’ll certainly wait to see what’s left of my net worth at the end of the pandemic!) As some have pointed out, it’s relevant to consider how home-centric one is and how much one wants to spend on other things, such as travel, cars, gifts, dinners out, and hobbies. And also how much one values the comfort of living well within one’s means, with an ample margin of safety in case things go south. Thanks again for sharing your thoughts and information about your circumstances.

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Re: Percentage of Net Worth in Home

@Tibbles 

Phrasing the question as "Percentage of Net Worth in Home" might get answers that are not what the OP intended. My guess is that Home Equity (market value minus liens) would have been a more useful description.

Example: Someone with a $500K home w/ a $400K mortgage and also has another $1.4M of intangible assets, has a Net Worth of $1.5M ($1.4M + $500K - $400K). There is really only $100K of equity in the home and that is what should contribute to a New Worth calculation. It would be patently incorrect to say they had 33% ($500K as a % of $1.5M) of their Net Worth in their home. Rather, they really have only a bit less than 7% ($100K home equity as a % of $1.5M) of their Net Worth in their home.

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Re: Percentage of Net Worth in Home

@VA-Tech  Yes, clarity is important and takes considerable care to achieve. What I was after was the current market value of the home (whether it’s mortgaged or not) as a percent of net worth (which takes into account both the equity in the home and any mortgage debt). My question to myself is how expensive a home I can afford given my net worth. 

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Re: Percentage of Net Worth in Home

@Tibbles I don't think it is easy to apply other people's net worth vs home value is necessarily applicable to one's own situation, but is perhaps interesting to know. Recently my SO met with her financial advisor to assess buying a new home. After factoring whether to pay interest on a mortgage or pay with cash on hand, his approach was to reassess longevity of her PF at a reduced value (if paying cash) or adding the expense of a mortgage. In our case it isn't much of an issue because she would be selling her current home to buy an new one of similar value, so a mortgage interest would be short lived, and hopefully less than PF growth, but short term you never know.

I never liked looking at my home as an investment, but that is mostly because my home has no value over and above my minimal standard of shelter. In other words I couldn't sell it and buy another and have money left over, and I have to live SOMEwhere. 

So I tend to look at affordability as a product of income from PF and other sources minus the expense of buying and maintaining the home. 

BTW I come in around 30% for home vs total net worth including my home. 

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Re: Percentage of Net Worth in Home

Ahhh, I did not read carefully. You wanted percentage of value and I gave you 15%, percentage of equity of home and vacation land. Value is meaningless to me as that is not all my money but the banks and mine. Only mine is of value to me.

Rich

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Re: Percentage of Net Worth in Home

Recognize, from a bank's perspective, mortage affordability is really a function of income, not net worth.

I built a large home a few years ago just before I retired. I wanted a mortgage simply because the rates were ridiculously low. My local banker was emphatic that I needed to apply, secure, and close on the home BEFORE I retired, else I would have no demonstrated income! This was said knowing I had intangible assets to buy the home outright 6x over. In fact, I delayed my retirement a couple of months because the build was slightly delayed. I should point out that while the loan was secured, there is an affirmation signature at closing that states that my financial condition had NOT changed since loan approval.

This isn't an uncommon problem given the many new banking regulations and retirees are often caught offguard. Frequently, early retirees rely on drawing down assets until determinstic income kicks in: Social Security, pensions, annuities.

I still contend a home's value is certainly less important a metric than is the equity in that home.

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