Your home may be your biggest asset, but that doesn’t necessarily make it your biggest source of retirement security. Here’s why your net worth can look impressive on paper while your retirement income remains surprisingly limited.
You’re a millionaire on paper, but can your wealth pay your bills?
Imagine you’re approaching retirement and your net worth statement looks impressive. You own a home worth $1.5 million, have $300,000 in retirement and investment assets, keep a modest amount of cash and have no mortgage. On paper, you’re a millionaire several times over.
Now consider someone else. They own a more modest $700,000 home, but have $900,000 invested, substantial retirement savings and a healthy cash buffer. Their total net worth might be broadly similar.
Yet when retirement arrives, these two households can find themselves in very different financial positions. That’s because net worth isn’t the same thing as retirement-ready wealth.
Your home can contribute significantly to your financial security. But unless you’re prepared to sell it, downsize, borrow against it or otherwise unlock its value, much of that wealth may not help pay for your groceries, healthcare, travel or everyday expenses.
This distinction matters in Singapore, where residential property represents a significant component of household wealth. (Property accounted for 56% of household wealth across all resident households in 2023, while Central Provident Fund (CPF) balances and other financial assets each represented 22%.)
The question, therefore, isn’t just whether you should buy property, but how much of your net worth can actually support the retirement you want?
Net Worth Can Hide a Liquidity Problem
Net worth is straightforward to calculate:
Assets – liabilities = net worth.
But not all assets behave the same way.
A home valued at $1.5 million is an asset. So are shares, managed portfolios, retirement savings and cash.
The difference is liquidity.
If you need $50,000 to cover your living expenses over the next year, you can’t exactly sell $50,000 worth of your home without making a major financial and lifestyle decision.
An investment portfolio, by contrast, can generally be drawn down progressively. Cash can be spent immediately. Income-generating investments may provide distributions without requiring you to sell the underlying asset.
This is why two people with similar net worths can have very different levels of financial flexibility in retirement.
A useful way to think about your balance sheet is to divide it into three buckets:
- Lifestyle assets: primarily your home and other assets you intend to use rather than sell.
- Income-producing assets: investments designed to generate dividends, interest, distributions or other returns.
- Liquid assets: cash and investments that can be accessed when you need them.
The smaller the gap between your total net worth and the value of your home, the more important you need to consider the liquidity aspect.
The $1.5 Million Home Problem
Let’s consider our first hypothetical household.
Home: $1.5 million
Retirement/investment assets: $300,000
Cash: $50,000
Mortgage: $0
Net worth: $1.85 million
That sounds comfortable. But suppose this household wants to spend $60,000 a year in retirement. The $1.5 million home isn’t automatically generating that $60,000.
The owner could sell the property and move somewhere cheaper. They could potentially borrow against the equity (subject to eligibility and lending conditions), or rent out the property and move elsewhere, depending on the circumstances.
But each option comes with trade-offs.
Selling means moving. Downsizing introduces transaction costs and potentially changes your lifestyle. Renting out a home introduces landlord responsibilities, vacancies and property-related costs. Borrowing against home equity creates a liability.
In short, home equity is valuable but unlocking it creates friction. Housing markets may evolve and governments may adjust policies around property, retirement income, taxation and housing supply.
For instance, homeowners in Singapore may have significant wealth tied up in their property, but accessing it is not always straightforward. CPF rules can require homeowners to return the CPF savings used to buy a property, plus accrued interest, when they sell. Other ways of accessing housing wealth also come with eligibility and usage conditions. As such, owning a valuable home does not necessarily mean having easy access to that wealth as cash.
The $700,000 Home Could Tell a Different Story
Now let’s look at the second household.
Home: $700,000
Retirement/investment assets: $900,000
Cash: $150,000
Mortgage: $0
Net worth: $1.75 million
Its net worth is slightly lower.
But $1.05 million of its wealth is held outside the home.
That could potentially give the household more flexibility over how it funds retirement, depending on how those assets are invested, the returns they generate, applicable taxes and the individual’s spending needs.
The point isn’t that a $700,000 home is financially superior to a $1.5 million home. It’s that the composition of your wealth matters almost as much as the size of it.
For someone planning for retirement, a dollar invested in a diversified portfolio and a dollar tied up in a family home may have very different jobs.
The Cost of Downsizing
Downsizing is often presented as the obvious solution for homeowners who are asset-rich but income-poor. And it can be a powerful strategy.
For example, if you sell a $1.5 million property and buy a $900,000 home, you could potentially release $600,000 of gross equity. But the key word is gross.
Selling and buying property can involve agent fees, legal or conveyancing costs, taxes and duties, renovation expenses, moving costs and other transaction costs.
Downsizing can therefore be part of a retirement strategy, but it shouldn’t be the only strategy.
Your Retirement Plan Needs More Than a Property Valuation
A more resilient retirement plan starts by asking a different set of questions:
- How much will I need each year?
- How much of that spending can be covered by predictable income?
- How much of my wealth is liquid?
- What happens if markets fall just as I retire?
- How much cash do I need for unexpected expenses?
- How much of my net worth am I actually willing and able to use?
This is where building investment assets alongside property can make a difference.
Instead of relying exclusively on future property appreciation or a future downsizing decision, investors can consider allocating part of their portfolio to assets designed for different financial objectives.
For example, a cash management solution such as Syfe’s Cash+ Enhanced can be considered as an alternative destination for part of the capital that might otherwise remain concentrated in property, providing a way to keep some wealth more accessible while seeking returns on cash. This latest addition to Syfe’s cash management suite is catered to idle funds with a time horizon of at least a year.
For investors focused on generating income, an income-oriented managed portfolio such as Income+ can provide another way to build retirement assets outside the family home, with the potential for portfolio income alongside capital growth over time.
Property Can Be Part of Your Retirement Plan, But Not the Whole Plan
Property is not a bad asset. Your home provides somewhere to live, can appreciate in value and can reduce housing costs in retirement if you own it outright. For many households, it will remain one of their most valuable assets.
The risk is assuming that a high property valuation automatically means you are financially prepared for retirement.
A retirement portfolio needs to do more than look good on paper. It needs to provide liquidity, flexibility and – depending on your circumstances – a sustainable source of income.
So the next time you calculate your net worth, don’t stop at the final number. If most of your wealth is sitting inside your home, it’s worth investigating how much of your wealth can actually fund your retirement if you can’t sell this house tomorrow. That number may tell you more about your financial readiness than your property valuation could.
The bottom line
Being wealthy and being retirement-ready aren’t necessarily the same thing. Your home can make you a millionaire on paper, but the real test of your retirement plan is whether enough of your wealth is able to fund your retirement.
Property should just be one pillar of your financial future. A diversified pool of liquid, income-producing and retirement assets should be another.
Explore wealth management solutions with Syfe today.
