07/16/2014 04:14 pm ET Updated Sep 15, 2014

Is Your Home Equity Part of Your Retirement Savings?

Dear Carrie,

Can I include the value of the equity in my house when I'm calculating how much I have set aside for retirement?

-- A Reader

Dear Reader,

Great question. For many people, their home is their biggest investment, so it only makes sense to think of it as part of what you have 'set aside.' But while your home is definitely part of your overall net worth, how it factors into your retirement savings depends on more than your current equity. It depends on whether or not you're going to turn that equity into cash when you retire.

So before you can decide on whether or not your home equity fits into your retirement savings calculation, you have to look at a couple of other important things.

Start with a simple net worth calculation
Whenever we try to get a sense of our financial well-being, I think it's best to take a step back and look at the big picture. Start by adding up the value of everything you own -- your home; money in your bank accounts; your investment and retirement accounts; your car; business interests; personal property such as jewelry, art and furniture (what you could sell it for, not what it would cost to replace); and the cash value of any insurance policies. That's all on the plus side.

Now look at the minus side by adding up what you owe. This would include your home mortgage, as well as things like car loans, student loans and credit card balances. Then subtract what you owe from what you own. (If you're in the minus, you've got some rethinking -- and saving -- to do!)

This gives you an overview. Now you can get into the specifics.

Figure out your retirement cash needs
A comfortable retirement depends on having the cash to cover your expenses. But a lot of people drag their feet when it comes to taking a realistic look at what their retirement expenses will be. It's tempting to simply think you'll need less money in retirement, but think again. Will you still have a mortgage? Do you want to travel? Have you factored in health care costs? Will you be debt free?

You'll often see the estimate that you'll need about 80 percent of your current income in retirement. But the reality for many retirees (and I've talked to quite a few of them!) is that they spend about the same in retirement as they did when they were working, especially in the early years.

Plan for your cash flow
Once you've figured out your cash needs, you have to decide where that cash will come from. When you're in retirement, it's not just a question of how much you've saved, but how you turn that savings into a regular 'paycheck.' Most people don't live on their investments alone. So analyze your situation: Will your cash come primarily from Social Security or a pension? Will you have income from a real estate investment? How dependent will you be on your portfolio?

Now factor in your home
With your net worth, estimated retirement costs and cash flow possibilities in front of you, you can then decide if your home equity needs to play a part in your retirement cash picture. If you've already decided that you'll sell your home and add the proceeds to your retirement nest egg, then the equity in your home can be included in your overall retirement savings. (However, be sure to add alternate housing costs to your estimated retirement budget!)

If you don't plan to sell, then your home equity, while still an important part of your overall net worth, shouldn't be included in your retirement savings calculation.

This may seem like a long way to get to a simple answer, but when it comes to retirement, thoughtful planning is the key. I don't know how close you are to retirement, but it's great that you're looking at this in advance. I encourage everyone to be as forward thinking as you are!

Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."

Read more at You can e-mail Carrie at This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.


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