Almost everyone once thought of their house as their largest and safest investment—until the bubble burst. For generations, prudent "savers" would put sizable chunks of their incomes into their homes. To begin with, you would buy a house slightly above your price range, thinking, "My salary will increase about 2 percent to 3 percent each year, and soon it will be just right."
"My home is my retirement."
That sentiment may not be as sound as it may have been for your parents. A recent CNBC.com article explored this issue in an article titled “Don't treat your home like a cash cow.”
The thought was that a person could purchase a home that was a bit over their price range, but they would see their salary "grow into" the mortgage payments. The home would be an investment that would pay off handsomely 40 years down the road when they were ready to sell.
However, based on the recent market history and outlook for mortgage rates versus the potential in the stock market, mutual funds, and annuities, a person today is much better off buying a more modest home and putting those excess funds into a strong growth fund for a much better return.
If you have questions about how to structure your income to see the greatest return for your retirement, speak to an experienced estate planning attorney.
Reference: CNBC.com, February, 22, 2014: “Don't treat your home like a cash cow”