A paid-off house does not pay for retirement

Your house is worth $900,000. How much of it can pay next month's grocery bill? If you are not selling it, renting part of it, or borrowing against it, the answer is $0. Count the lower housing costs, but keep the equity out of the spending pool until a transaction releases cash.

I would not let the same house appear twice in a retirement plan: once as lower housing costs and again as though its full value were an investment account.

Put one amount in the spending plan

Suppose a retirement spreadsheet shows an $800,000 home and $300,000 of investments. If you plan to stay in the home, $300,000 is available to pay bills, not $1.1 million. The home still matters because the budget has no mortgage or rent. It does not also become $800,000 of spendable assets.

Here is how I would treat it:

• Stay in the home: Count $0 of the equity as spendable. Use the lower housing budget and keep the home in net worth.
• Sell and downsize: Count only the expected cash left after selling, moving, and buying the replacement home. Add it on the expected move date, not at the start of retirement.
• Rent part of the home: Count the estimated income only if you are prepared to become a landlord and use the property that way.
• Borrow against the home: Count the loan proceeds as cash and the loan as debt. Do not call borrowed money investment income.

If none of those choices is in the plan, the equity is not part of the spending pool.

The mortgage is not the housing budget

Mortgage-free does not mean housing-cost-free. Property tax, insurance, heating, and maintenance can continue. Depending on the property, the budget may also need utilities, condominium fees, repairs, or accessibility work. Some costs arrive every month; others arrive as a roof, furnace, window, or special assessment.

Home insurance does not replace a maintenance reserve. Coverage varies, deductibles apply, and the Financial Consumer Agency of Canada notes that predictable maintenance events are generally excluded.

I would list annual carrying costs separately from a reserve for major repairs. Removing the mortgage while forgetting the rest makes the home look cheaper than it is.

Borrowing is a conversion, not a return

A reverse mortgage can release equity without a sale. The Financial Consumer Agency of Canada says these loans are usually for homeowners aged 55 or older. The amount available can depend on the home, its location, the lender, and the ages of the borrower and other people on title. Regular loan payments are usually not required, but it is still a loan.

Interest is added to the balance. Rates are usually higher than for a conventional mortgage or home-equity line of credit, fees may apply, and the growing debt leaves less equity in the home and estate. This is borrowing, not a return from the house.

Five questions settle it

Before counting home equity as retirement money, answer:

1. What exact action releases the cash?
2. When will that action happen?
3. How much cash remains after the replacement housing and other transaction costs?
4. What housing costs continue before and after it?
5. What is the backup if moving, renting, or borrowing is no longer practical?

My rule is to keep the house in net worth until the plan names the transaction and date that puts its cash in the account that buys groceries.