Saving enough money for retirement is top of mind for many working adults. In fact, 53% of Americans feel behind on planning for retirement, according to a 2024 CNBC survey with SurveyMonkey.
But you might be ignoring a key future asset you’re paying for in the present: your home.
“People see the money in their bank,” says Jason Stein, a certified financial planner and founder of Bluepoint Wealth Advisors. “They see the money in their brokerage account, their 401(k)s, their [individual retirement accounts]. They don’t often think about the money that is built up in their home.”
Here’s why financial experts say it might be smart to view your mortgage as part of your retirement savings, instead of an expense.
Debt that pays it forward
You shouldn’t necessarily think of your mortgage payments as burdensome expenses. Instead, they can be seen as healthy debt, says Winnie Sun, a CFP and co-founder of Sun Group Wealth Partners.
“There’s obviously unhealthy debt, like credit cards and things like that,” Sun says. “And then there’s debt that could pay it forward. One is student loans, obviously, right? And then the mortgage.”
Certain types of debt can be considered healthy because they help fulfill a need like education or shelter. And for the most part, you can expect to make consistent, predictable payments at a fixed rate.
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Your mortgage payment can be thought of as two parts: the interest and the principal amount of your loan, Stein says. The only part of the payment that is a true expense is the interest. You can’t recover the interest you paid if you decide to sell your home, but you are able to regain the dollars spent paying down the principal.
After you’ve paid off your mortgage, “you recover some of the value of those payments that you’ve made throughout the years” when you sell your home, even though there are transaction costs involved, he says.
‘It’s almost like forced savings’
Your home serves an important need in the present as shelter, but is also a valuable investment for your long-term savings, Sun says. If you have a fixed-rate mortgage, she adds, you’re paying a constant, predetermined amount on your home, compared with say, paying rent each month, which could fluctuate.
“It’s not like an investment property, because you’re using it for shelter, but it certainly benefits you,” Sun says. “Because instead of paying someone else’s mortgage, [like] when you’re renting, you’re paying your own mortgage, and so you have the possibility of having that asset grow over time.”
As the property appreciates, the option to sell your home in retirement becomes more viable. That cash can be factored into your retirement plan and take away possible worries about not saving enough.
It’s not unlike managing routine contributions to your retirement accounts, such as a 401(k).
“Each year, you’re actually saving more than you realize, because you’re paying off a loan balance that at some point in the future can be recovered by selling the house, which also may have appreciated,” Stein says.
Your expected cash flow in retirement likely includes sources like retirement account withdrawals and Social Security benefits. But those may not be enough to cover the lifestyle you want, and you may not want to cut out discretionary purchases, like travel, Stein says. That’s where selling your house might come into play.
“What are some of the things that we can consider?” he says. “This is where a lot of the conversations happen.”
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