Retirement Ready? Think Again As Experts Warn Homeowners Still Paying Mortgages That They 'Are Much More Likely To Be Overconfident'

Owning a home can give some people confidence about their retirement prospects, but experts warn that this confidence might be misplaced.

According to the Your Money Retirement Survey conducted by SurveyMonkey and CNBC.com, about 37% of workers – including those employed part-time, full-time, self-employed, or as business owners – believe they are "ahead of schedule" (7%) or "on schedule" (30%) with their retirement savings.

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Among those who feel on track, 42% attribute their progress to starting retirement savings early. Other key factors contributing to their preparedness include having little to no debt (38%) and home equity or ownership (37%).

The August survey gathered responses from 6,657 adults, including 2,603 retirees and 4,054 working adults.

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Angie Chen, a senior research economist and assistant director of savings research at the Center for Retirement Research at Boston College, suggests that homeowners' confidence in their home's value as a source of retirement wealth may be misguided.

"Homeowners are actually more likely to be overconfident in their retirement readiness," Chen told CNBC. "There's a lot of misconception in terms of how people assess whether they are ahead or not in retirement."

Nevertheless, Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, California, points out that homeownership can offer other benefits during retirement.

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The Center for Retirement Research's (CRR) National Retirement Risk Index (NRRI) gauges the percentage of working-age households at risk of being financially unprepared for retirement. A 2023 CRR analysis revealed that 28% of people believe they are not at risk, despite the NRRI indicating otherwise.

"People who own houses but still owe a lot on their houses are much more likely to be overconfident or not worried enough," Chen said.

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To accurately assess retirement preparedness, Chen emphasizes the importance of considering not just the value of your home but also the amount you have borrowed and still owe.

For instance, if you purchased a $500,000 home but still owe $400,000, your actual equity is $100,000. Experts caution that accessing this equity can be costly and risky, as borrowing against your home is not always straightforward.

"Housing is not liquid," Chen said. "You might feel good about having this large asset, but you can't consume that in retirement. You can't spend it so that you can spend and consume other savings."

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Experts also point out some advantages to homeownership.

Owning a home offers financial benefits even if you're not factoring in home equity for retirement. First, you build equity in your home. Sun said that when you sell the property, such as when downsizing in retirement, you can access that equity as a lump sum.

Additionally, while you own the property, you have a fixed housing cost, typically including a stable mortgage payment. Despite rising costs for home insurance and property taxes in recent years, you might be eligible for senior discounts on utilities by the time you retire.

Although a house is not a liquid asset, experts suggest you can still access your home equity if needed.

"In most cases for retirees, they kind of see equity as their emergency fund," Sun said.

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