Is your house the key to financing your retirement?

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Is your house the key to financing your retirement?

Home: it's your shelter from the world. The place you raise your family. A gathering spot for friends. The key to financing retirement?

Homeownership has for generations been the greatest source of net worth for many Americans. Adults ages 65 and older are more likely to own a home and have more equity in their homes than their counterparts did just 25 years ago. In fact, older Americans have experienced the largest increases in home equity since 1984, with their median equity value rising 57 percent between 1984 and 2009 alone.1 Not surprisingly, many retirees eventually tap their home equity to help meet expenses later in life. But, is treating your house as a source of retirement income a financially sound strategy?

That depends.

After years of rising real estate prices, Americans of all ages have experienced the painful realization that the real estate market is highly volatile. Home values plummeted almost overnight, as the demand for housing dried up, supply surged, risky loans re-adjusted and banks started foreclosing. In fact, economists estimate that homeowners in the United States lost a total of $3.3 trillion in property value in 2008 alone.2

For most Americans, their single biggest asset is the equity in their home. At the peak of the boom, total net home equity in the U.S. (the value of owner-occupied homes minus the remaining mortgage debt) stood at $13 trillion. Today, it is down to $6.1 trillion.3 Despite these losses, a recent article uncovered a worrisome fact: 60 percent of non-retired Americans are counting on using the equity in their houses to help finance retirement.4

A wake-up call for investors The continued market uncertainty is a sharp reminder of the important role diversification plays in any sound investment strategy -- including the creation of reliable sources of retirement income.

For many Americans, a home may be their largest investment. That makes sense; buying a house typically consumes a significant portion of most people's net worth. The problem is, unless home prices rebound sharply in the years ahead, investors who are counting on using the equity in their homes to fund retirement may have less to draw from than they had planned.

Real estate tends to do well during periods of low inflation and steady economic growth. It tends to struggle, as we now are all painfully aware, during periods of recession; and it tends to surge ahead when the economy is firing on all cylinders and inflation is heating up.

That's why it's important to diversify your sources of retirement income by maximizing your other sources, such as Social Security, part-time wages, employer-sponsored retirement plans, pensions, and your own personal savings and investments. Because these different investments tend to respond differently to various economic conditions, doing so can help protect your overall stream of income in retirement, regardless of what's happening in the market.

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Mix it up When you consider that your retirement is likely to last 20 years or longer, your portfolio is apt to experience a variety of market conditions. Since no single investment will perform well under all circumstances, you want a welldiversified portfolio that can help build protection against inflation, even out the ups and downs of the markets, and generate the ongoing income you need to support your lifestyle in retirement.

That takes us back to the notion of using your home as a nest egg for retirement. No one can predict with certainty when or even if housing prices will rebound to prior levels. But, even if they do, there's an important lesson here: a home may be the heart of your family, but it's also a structure made of bricks, walls and beams. As such, that means it has monetary value. That value can and should be used when needed. The key is protecting your retirement income by building a mix of other investments that can see you through, no matter what' s happening in the market.

Where will your retirement income come from?

Expected source

1. Part-time work 2. Bank accounts and

money market funds 3. Home equity 4. Stocks and stock funds 5. Tax-deferred accounts

(401(k) and 403(b) plans, and IRAs) 6. Inheritance 7. Annuity and other insurance products 8. Social Security 9. Pension plans

Percentage of non-retired

Americans 71 68 60 53

46

34 34 33 28

Source: Brandon, Emily. "10 Ways to Pay for Retirement," U.S. News & World Report. , May 14, 2012.

For further information on retirement planning We invite you to visit or call the My BMO Retirement Line at 1-800-858-3829.

1 "Wealth Gap Between Young and Old Grows," , November 8, 2011. 2 (2009). Americans Lose $1.4 Trillion in Home Values in Q4; More Than Was Lost in All of 2007. Press release available at: .

php?s=159&item=103. 3 Federal Reserve Statistical Release. "Flow of Funds Accounts of the United States, " December 31, 2011. 4 Brandon, Emily. "10 Ways to Pay for Retirement," U.S. News & World Report. , May 14, 2012. BMO Retirement Services is a part of BMO Global Asset Management and a division of the BMO Harris Bank N.A., offering products and services through various affiliates of BMO Financial Group. Investment products are: NOT FDIC INSURED ? NO BANK GUARANTEE ? MAY LOSE VALUE.

?2012 BMO Financial Corp. 11-325-659 (09/12)

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