Ready for retirement? Think again as experts warn homeowners still paying off mortgages ‘are far more likely to be overconfident’

Owning a home can give some people confidence in their retirement prospects, but experts warn that that confidence could be misplaced.

According to the Your Money Retirement Survey by SurveyMonkey and CNBC.com, about 37 percent of workers—including those employed part-time, full-time, self-employed, or as business owners—believe they are “ahead of schedule” ( 7 %) or “on schedule” (30%) with pension savings.

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Among those who feel on track, 42% attribute their progress to starting retirement savings early. Other key factors contributing to their readiness include having no debt (38%) and equity or property (37%).

The August survey gathered responses from 6,657 adults, including 2,603 ​​retirees and 4,054 working adults.

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Angie Chen, a senior research economist and deputy director of savings research at Boston College’s Center for Retirement Research, suggests that homeowners’ confidence in their home’s value as a source of retirement wealth may be misplaced.

“In fact, homeowners are more likely to be overconfident about their retirement preparation,” Chen told CNBC. “There are a lot of misconceptions about how people assess whether or not they are ahead of retirement.”

However, Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, Calif., points out that home ownership can provide other benefits during retirement.

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The Center for Retirement Research’s (NRRI) National Retirement Risk Index (NRRI) assesses the percentage of working-age households that are at risk of being financially unprepared for retirement. A 2023 CRR analysis found that 28% of people believe they are not at risk, despite the NRRI indicating otherwise.

“People who own homes but still owe a lot on their homes are much more likely to be overconfident or not worried enough,” Chen said.

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To accurately assess retirement readiness, Chen stresses the importance of considering not only the value of your home, but also the amount you’ve borrowed and still owe.

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For example, if you purchased a $500,000 home but still owe $400,000, your equity is $100,000. Experts warn that accessing this equity can be expensive and risky, as borrowing against your home isn’t always straightforward.

“Housing is not liquid,” Chen said. “You might feel good about having this big asset, but you can’t use it up in retirement. You cannot spend it so that you can spend and consume other savings”.

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Experts also point out some advantages of ownership.

Owning a home offers financial benefits even if you don’t factor in retirement equity. First, you build equity in your home. Sun said when you sell the property, such as when you downsize to retirement, you can access the equity as a lump sum.

Additionally, while you own the property, you have a fixed cost of housing, which usually includes a stable mortgage payment. Despite the rising costs of home insurance and property taxes in recent years, you may be eligible for senior discounts on utilities until retirement.

Although a home is not a liquid asset, experts suggest that you can still access equity if needed.

“In most cases, for retirees, they see equity as their emergency fund,” Sun said.

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Is this item ready for retirement? Think Again As Experts Warn Homeowners Still Paying Mortgages ‘Are Much More Likely To Be Overconfident’ originally appeared on Benzinga.com

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