This 17.4 fold increase amazed me. Over the 40 years, this was a 7.4% annual return. And based on today's tax laws, the gain would be tax free up to $500,000. This would be been one of my parent's higher returning investments, were they still living there today.
On the other hand, I don't think they would have been able to monetize their gain. Their current house, although much larger and newer, is worth about $450,000. So most of the gain from their first house would be tied up in the equity of their current house. This is the issue with counting home equity towards one's retirement. The gains may still be tied up in the house during one's retirement.
Hopefully, we will see similar gains on our house. At the same rate of increase, my first house of $75,000 will be worth $1,300,000 at 40 years. Based on a staged retirement strategy, I believe we will be able to monetize our home. In the first stage of retirement, we will continue to live in our home. In our second phase of retirement after 85, we will either sell our home or do a reverse mortgage.
For more on Crossing Generations, check back every Thursday for a new segment.
Photo Credit: morgueFile.com, Daniel T. Yara
This is not financial advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC