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Should we rely on our home equity for retirement?
When the prices of houses go way up, the financial community says that people have a lot of wealth and that they don't have to save. But when the prices of houses falls, they don't come out and say,"Hey, you should be saving more." When the stock market was booming through the 90s, they said,"People don't have to save because their savings are already growing at such a high rate." But you didn't hear them say that when the stock market fell in 2000. Grandma's house was 1100 square feet; the average house today is 2300 square feet. Many people are building houses over 4000 square feet. Your house, the maintenance costs of your house go up as the dimensions of the house go up. Your property taxes go way up. So 20 years from now, I believe that the prices of small houses are going to be the premium relative to the price of a large house. People are going to want to downsize and their big house may very well be difficult to sell, not the kind of prices they're anticipating now. So I think getting a lot of equity out of your house a long time in the future is probably not that promising. If you think you'd get a lot of equity in your house now, you're around 50, 60 years old, my advice would be to sell now and start investing that money.
Henry Hebeler is the author of Your Winning Retirement Program. He spent most of his working career at The Boeing Company where he began as an engineer, worked his way through financial analysis, procurement, sales, corporate long range planning, and ultimately became president of Boeing Aerospace Company in Seattle, WA. He has been on advisory committees to the U.S. Congress, Departments of Interior, Commerce, Energy, and Defense, an economic advisor to the Washington State governor and a member of Washington's Economic Development Council. This is an edited transcript of an interview conducted on September 5, 2007.