Americans 65 and older hold roughly $12 trillion in unspent home equity, according to TheStreet, citing research from Boston College’s Center for Retirement Research. That’s a staggering pile of wealth sitting in drywall. Suze Orman has a warning for anyone who counts it as retirement money: it isn’t spendable, and her “Suze School” lesson on home equity retirement planning is back in circulation. 24/7 Wall St. reports it was re-aired on October 15.
The stakes are bigger than one podcast. TheStreet also reports that home equity and retirement accounts make up 78.2% of typical family wealth. We haven’t checked the underlying research, so treat those figures as TheStreet’s. For a wider look at who holds that wealth, see our piece on how boomers’ household wealth shapes spending.
If a house is your biggest asset, a wobbly housing market doesn’t just dent your net worth. It can dent your whole plan. And as many sellers have learned lately, “worth” and “sold” are two very different words. Even cash buyers, as our look at the cash-driven housing market shows, don’t make selling simple.
The Ohio couple who couldn’t sell
The lesson is built around a listener email. In the podcast transcript on Orman’s own site, she says a couple in Ohio had paid off their mortgage and planned to sell. Then they would buy another house outright with the proceeds.
Instead, the plan collapsed. According to the transcript, the couple wrote that they couldn’t sell because “our house isn’t worth anything.” They couldn’t get a loan either, because banks in their area weren’t lending.
It makes her point better than any spreadsheet could.
Why home equity in retirement is shaky math
Run your net worth twice. Once with the house, once without. Here is Orman’s request, in her own words:
“I am asking all of you, if you are calculating your net worth, to look at what your net worth is without the equity in your home, so that you get a realistic view as to what you really could afford if all of a sudden your home went away.”
Her second reason is simpler. Most people don’t plan to sell. Instead, they plan to live in the house for the rest of their lives. “You do not live in the stock market, but you live in your home.”
Equity on paper only becomes spendable money if you sell, borrow against it, or take out a reverse mortgage. After a disaster or a market shock, a home equity line or a sale may not be available when you need it. Rising foreclosures show how fast things can go wrong, as foreclosures hitting a six-year high make clear.
Treating your house as a retirement fund: what the math looks like
24/7 Wall St. illustrates the idea with a hypothetical couple: a paid-off $450,000 house and $350,000 invested. Under the common 4% rule, they’d plan their withdrawals from the $350,000, not the combined $800,000. Note that those numbers are the outlet’s example, not Orman’s.
The takeaway, per TheStreet’s summary, is simple. Build your withdrawal plan on the lower number. If you later downsize or tap a reverse mortgage, treat that money as a bonus, not the foundation.
So run both numbers tonight. If the version without your house still lets you sleep, you’re in good shape. If it doesn’t, better to find out now than at the closing table.
