How to Include Your Home in Your Retirement Plan

Philipp Muedder

Head of Partnerships

06 October 2020

If you own the house in which you live, you know that it’s a big expense and often a substantial portion of your assets. But how should you consider it when you’re planning for your retirement? The answer, like many answers in financial planning, is: It depends. Here’s how to include your primary residence as part of your retirement plan.

Don’t include its value as part of your retirement savings 

No matter how much your primary residence is worth, don’t include its value as part of your savings. Even if you’re planning on selling the property, it’s nearly impossible to account for your home’s market value in your retirement plan, because the real estate market fluctuates with the economy and many other factors. 

Yes, you may be able to sell your home at a higher value, or downsizing to a smaller place. But, because you can’t predict the housing market, you don’t want to count on such a large amount of money to contribute towards your retirement plan. 

And if you’re not planning on selling it, the value definitely won’t help you cover your living expenses. So even if you have a house that’s currently worth RM 1 million, that doesn’t mean that you have RM 1 million saved towards retirement. 

Include your investment properties in your retirement plan

Do you have additional properties that you don’t live in? If you rent them out, these are great streams of passive income that you should absolutely include in your retirement plan. They can cover some if not all of your living expenses.

And even if eventually the property management gets to be a burden, you can still sell those properties when you want to free up more cash for your retirement. But remember, just as we can’t predict the future value of our primary residence, we can’t predict other properties either. So be conservative with your estimates on how much rent you can receive each month, or how much you can sell the property for eventually. The sale of an investment property should also be considered as an extra windfall, not an amount you count on.

So how does your home fit into your retirement plan?

If you shouldn’t include your primary residence’s value in your retirement savings now or once you sell it, where does your home fit into your retirement plan? Well, first, knowing where you plan to live is a key part of your retirement plan. It’ll determine your cost of living and other logistics. 

And second, chances are that by the time you retire, you’ll have paid off your mortgage, which reduces your expenses in retirement.