Many Homeowners Are Putting Their Retirement In Jeopardy

If you’ve made it to middle age as a homeowner, you probably know that maintaining a house is expensive. But a recent survey from Unlock Technologies found that the costs of homeownership took 65% of respondents by surprise; they said it was more expensive than they thought it would be.

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Home maintenance and repair costs can cut into other spending, ranging from discretionary expenses like vacations to retirement savings. Across age groups, 38% of homeowners are taking fewer vacations, while 33% are delaying major purchases. Meanwhile, 22% are putting less money into their retirement. Seventeen percent are using credit cards more often to cover costs, while 10% have delayed funding a business or making other investments.

It’s never ideal to tap into retirement funds or reduce your retirement contributions. But if you don’t have an emergency fund for home repairs, it might be necessary. Nearly one-third (30%) of homeowners have less than $1,000 in emergency savings, according to the report.

“People need a reliable, safe, functional home to live in,” Michael Micheletti, chief communications officer at Unlock Technologies, pointed out. “There could be times when a homeowner needs to minimize retirement savings contributions for a limited time to cover needed repairs and maintenance on their home.”

As with most things finance-related, a little preparation can save a lot of headaches down the line.

Know the lifespans of key parts of your home

Understanding when the pricier elements of your home may wear out or break can help you prepare for those costs.

Exterior components, including your roof, windows, and doors, typically need replacement every 20 years or so. Major kitchen appliances should last between 10 and 15 years, although it often seems like their life spans are much shorter than they used to be. Then there’s annual maintenance, which should be part of your monthly budget to avoid surprise costs. According to mortgage resource HSH, this includes things like:

• Cleaning gutters (twice a year, at least)
• Tuning and cleaning HVAC systems
• Landscaping and pruning (to minimize the risk of trees falling)
• Replacing batteries in smoke and carbon monoxide detectors (2x a year)
• Checking windows and doors for drafts and re-insulating if necessary
• Checking for leaks and repairing if necessary
• Pressure washing vinyl siding and inspecting for damage

“We know that homeownership involves far more than making a monthly mortgage-with-interest payment,” Micheletti said. “All of these costs involved in the upkeep of a home have risen significantly in the past several years and show no signs of slowing.”

Understand the costs of home improvements

Multiple sources suggest setting aside 1% to 3% of your home’s purchase price for maintenance and repairs. If you bought your home years ago, it might make more sense to set aside 1% of your home’s current value, since the price of materials and labor has gone up over the years.

Newer homes might have lower maintenance costs, while older homes run the risk of major systems and components breaking at the same time, which could require a heftier pile of cash. For a more accurate estimate, First Option Mortgage recommends calculating the real rough costs of home maintenance and repairs and setting aside an appropriate amount to build an emergency buffer over time. 

At a bare minimum, you’ll want to have enough in savings to cover your home insurance deductible if you have to file a claim. Micheletti detailed some home repairs you shouldn’t put off, even if it means borrowing money to pay for them.

Plumbing problems were first on his list. “Drips from faucets may seem minor but will eventually stain a sink or rust out the drain assembly, leading to ruined cabinets and floors,” he said.

Likewise, water external sources coming through the basement or the ceilings should not be ignored. “Water spots on a ceiling or wall can mean moisture entering the house, caused by a leaky roof or pipe. Eventually, it could mean ruined floors, walls, furniture and sometimes mold,” he said.

Other items on the list include:

• Sump pump malfunctions
• Electrical issues
• Railings
• Decks
• Cracks in foundation walls or floors

Will you make back what you spend in home improvements?

Necessities like a new roof or hot water heater aside, it’s often tempting to make major improvements to your home to increase its value and improve your quality of life in the house. But it’s not typically a good idea to dip into emergency savings, cut back on retirement savings, or put daily expenses on credit cards to afford these types of improvements.

“It’s important to remember that few projects produce a positive return on investment,” said Micheletti. “In other words, if you spend $40,000 on a major kitchen remodel, it generally does not mean the value of your home will increase by that much.”

However, if you can afford the improvements without sacrificing your financial future, you’ll reap the benefits now and when you sell.

“The project can still make a home more comfortable, functional, and even marketable,” he added.  

Tap into home equity, wisely

Many long-time homeowners find themselves sitting on hundreds of thousands of dollars in equity tied up in their houses.

“Home equity is the current value of your home less anything you owe on it,” Micheletti explained. “So, if your home is worth $500,000 and you have a $300,000 mortgage (and no other loans on it), you have $200,000 of equity.”

Tapping into that equity, as long as you will be able to still afford the payments in retirement, can be a wise choice.

“Home equity can be a tremendous resource to pay off debt, fund home improvements and maintenance projects, pay education expenses, even help start a business or assist with essential expenses. The key is to have a plan and know how you’ll implement that plan,” Micheletti said.

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