Tuesday, September 13, 2016

One Retirement Housing Risk No One Talks About

A recent discussion in the forums of the Alliance of Comprehensive Planners involved whether or not people should pay off their mortgages when they get to retirement.  I've got my opinions on that, but one side of the argument I had never heard before came from an ACP colleague* and I thought it so important to consider I wanted to share a snippet of her response:

We are often called upon to bring up the subject of awful things that can happen. The "why you should have a mortgage" story belongs in this area. Several years ago my father-in-law bought a home in a half-built housing complex in central Florida just as the housing crash started. The subdivision had new houses standing empty, unsold, when he had a change in his health that required he move. 
We had to sell in a terrible market, we had to sell under duress, he lost all his equity, but he didn't lose more than that. The mortgage on his house served as a stop-loss in that situation. The bank shared the risk.
Whether it's because enemy armies are tramping across your land, or the local nuclear power plant developed a leak, or you have a stroke: sometimes you simply have to get out of Dodge. Having a material portion of your wealth tied up in an illiquid asset is simply bad planning.

Like many things in personal finance, there is no one correct answer to this mortgage question, and a lot of it has to do with personal temperament and personality - as another colleague said 'I can calculate correct thing for you to do, but a spreadsheet doesn't have to sleep at night!'.  

But it is important to consider as many sides of a question as possible before you can decide which answer is right for you.

* If you know anyone in New England who could use unbiased, fee-only advice from an expert in financial and tax planning, you'll be doing them a favor by sending them to check out Wendy Marsden of ProsperiTea Planning.

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