Counting on Home Equity to Fund Your Retirement? Here's Why You Shouldn't.

By Maurie Backman – Feb 22, 2026 at 3:16PM ESTKey PointsSome seniors make the mistake of thinking home equity can take the place of savings.Converting home equity to spendable money isn't so easy.Home equity also isn't a number that's set in stone.We’re bullish on these 10 stocks ›It might seem like a good plan, but it could backfire.For many Americans, their home is their largest asset. And after decades of paying off a mortgage, by the time you reach retirement age, you may end up with a home you own outright. If that home has also gained a lot of value since you bought it, you could end up retiring with a lot of home equity. But one thing you don't want to do is count on that home equity to fund your retirement. Here's why. Image source: Getty Images. The problem with relying on home equity Home equity is a nice thing to have, but it shouldn't take the place of actual retirement savings. And there are a few reasons for this. First, converting your home equity into spendable cash isn't so easy. You either need to take on debt in the form of a home equity loan or home equity line of credit (HELOC), or you need to sell your home. But selling may not be feasible if you want to stay in your community. And even if you're able to replace your home with a less expensive one, the costs of selling and moving could eat into your equity, leaving you with a lot less money than expected. Plus, the amount of equity you have in your home can fluctuate over time. Your home may be worth $750,000 today. But if the housing market tanks right when you want to sell, you may not get $750,000. Granted, this risk exists for pretty much any asset other than cash. Your individual retirement account (IRA) or 401(k) could also lose value in retirement. And if you need to tap your retirement account when the market is down, it could cost you. But on the flipside, within your IRA or 401(k), there may be assets that aren't down even in the midst of a market crash. For example, you may own a couple of resilient stocks that retain their value, in which case liquidating them for cash to cover expenses could mean avoiding losses. But if there's a housing market crash and you have only one home to sell to cash out your equity, you're likely to take a financial hit. Make home equity your backup plan There's nothing wrong with using home equity as a backup plan. If you end up with surprise expenses in retirement, a HELOC, for example, could be a good way to cover them in a pinch. But don't let home equity take the place of retirement savings, even if you have a lot of it. Instead, try to save enough so that you're in a position to cover your costs in full based on retirement plan withdrawals, Social Security, and whatever other liquid assets you may have access to.Read NextFeb 22, 2026 •By Stefon WaltersAre You Really Ready to Start Collecting Social Security? 3 Signs It Might Be the Perfect TimeFeb 22, 2026 •By Dana GeorgeWhy Cleveland's Culture Scene Makes It a Retirement Pick That Doesn't Feel "Sleepy"Feb 22, 2026 •By Maurie Backman3 Little-Known Social Security Rules All Married Retirees Should KnowFeb 22, 2026 •By Dana GeorgeThe Medicare Service That Nearly Disappeared But Came BackFeb 22, 2026 •By Keith SpeightsPresident Trump's Social Security Changes So Far: 4 Things You Should KnowFeb 22, 2026 •By Bram BerkowitzTrump Tax Season: 10 Major Tax Changes to Expect When Filing This YearAbout the AuthorMaurie Backman is a contributing Motley Fool retirement and Social Security expert with more than a decade of experience writing about personal finance, investing, and retirement planning. Maurie previously worked in finance analyzing distressed companies. She studied finance at Binghamton University.TMFBookNerd