How Much of Net Worth Should Be in Your Home

Homes are the single most valuable asset many people own but homes cost money to buy and maintain. Plus, they can demand a lot of our net worth.

How much of your net worth should be in your home? It’s is really a factor of how long you have to accumulate wealth, how much money you want to retire, the investment returns you can get, what you want, and your lifestyle expenses.

About 20 to 30 % is the standard rule of thumb for the percentage of net worth to have in your home but thinking outside the box may help you reach financial independence sooner.

The best percentage of net worth in your home goes way beyond a rule of thumb for proactive wealth building.

In this post I’ll address why the percentage of net worth to have in your home is so important in building wealth by outlining several examples to demonstrate this point.

Factors Influencing the Percentage of Net Worth a Home Should Be

As with most financial questions, the percentage of net worth that should be in your home is simply not a one size fits all formula.

As always, I refuse to write as though it is.

Several Millennial’s have become known for living in tiny houses and cutting expenses to the bone to create financial independence, for example.

They clarified their priorities from a big picture perspective.  They thought and lived outside the box to achieve their definition of financial independence.

Like me, you may not want to go to that extreme. But as always, I do go a little outside of the box when it comes to money because it has worked well for us.

Still, the percentage of net worth to have in your home is a factor of several big picture factors as you’ll see in the examples below.

Under the 3 examples given below, I’ll explain each of these factors and why they are so important in increasing your net worth to the level you desire.

High Percentage of Net Worth in House

Let’s look at Sara and Joe, a couple, both 50, with a net worth of $1,000,000.

They have $500,000 invested in a portfolio in stocks, bonds and money market based on a  standard asset allocation for their age.

They know that since stocks have increased strongly in value over the previous 10 years, they should plan for a more realistic 4% annual return over the next decade before they retire.

Click here to read my post How to Understand Your Investments for more explanation about this.

This estimated 4% return is before considering inflation, so their real return will be roughly 2%.

They would really like to retire at 60 since they want to spend some time traveling before getting older.

Their home has increased in value over the years. They think they could sell it for $500,000 after all costs, so they have 50 percent of net worth in their home.

Is this the best percentage of net worth to have in a home for Sara and Joe? Let’s do some math.

To retire comfortably in their current lifestyle, they have decided they want investments of $1,500,000 for traditional retirement withdrawals. They are saving $1,000 a month and putting it into their investment portfolio.

By entering this information into the Retire Certain Early Retirement Calculator we see their investments will grow to about $941,000 by the time they wanted to retire at age 60.


Keep in mind this is based on best guesstimates, as all future projection calculators are. Their investments could grow by 8% a year or -2% a year but based on history and the current market environment as of this writing, 4% seems like an optimistic but reasonable projection.

Click here to go to my post How Much Money Do You Need to Retire with Vanguard founder Jack Bogle’s prediction on future returns.

Options to Increase Net Worth

By simply questioning the percentage of net worth that should be in their house, Sara and Joe have opened a world of possibilities to reach their retirement savings goals that they are not going to reach unless they make some changes as evidenced above.

Ways to Reach Retirement Goals for Sara and Joe

They could downsize and invest the proceeds from the sale of their home, for example.

With these proceeds, they could invest in income investments that pay higher dividends even during market declines.

They could sell covered calls on their stock holdings thereby increasing income, which could go toward increasing net worth.

Or they could not downsize and change their investment strategy to a more strategic one like the two above.

This could very likely increase their projected return of 4% to a higher amount thereby increasing the amount they would have saved for retirement at age 60.

Alternative Income Streams for Sara and Joe

Other than decreasing the percentage of net worth in their home by downsizing, Sara and Joe could lease their small detached garage apartment on AirBnb.

This would turn their net worth consuming home into an income producing asset instead of only a house with many expenses and no income.

Alternatively, or additionally, they could start a small online business over the decade before retirement.

Or they could start a small side business to increase income. The options for this are endless.

Click here to read my post entitled Businesses to Start Later in Life with 115 cool ideas. 

By doing any of these strategies to increase net worth in their 50’s, they could reduce the need to have $1,500,000 in retirement savings at age 60 because they would have higher income as they enter retirement. Plus, they could save the money they make until they retire at age 60 so they would accumulate more than $1,500,000.

Whatever Joe and Sara do, by seeing the percentage of net worth in their home as part of their overall wealth strategy, they can take steps to reach their retirement goals in several different ways.

The important thing is for Sara and Joe to take steps based on what matters most to them; staying in their current home, more income, retiring later, or downsizing.

It’s all about personal priorities combined with your own personal financial goals and situation.

Low Percentage of Net Worth in Home

In this example let’s look at Ted and Alice. They are also 50 years old and want to retire at 60 with $1,500,000 in investments to use for retirement withdrawal.

Their net worth is $1,300,000. After some research, they see they could get about $300,000 net from selling their home.

Their percentage of home value to net worth is 23%. They have $1,000,000 invested in stocks, bonds and a money market account. They are comfortable with a 4% estimated projected return.

Plus, like the couple above, they add $1,000 a month to this retirement savings account.

Entering this information into the Retire Certain Early Retirement Calculator, we see that they will have about $1,717,000 in their investment portfolio when they want to retire at age 60.

Ted and Alice are reaching their goals to retire at age 60 with $1,500,000 in savings. This is a simple and traditional model that will work IF their investment account has a 4% return after fees and taxes.

40 Percent of Net Worth in Home

Let’s look at Bob and Carol in this next example. They have a net worth of $1,000,000. In their net worth statement they have valued their home at $400,000.

They have $600,000 in their investment portfolio which is heavily invested in stocks and cash with minimal bonds.

How to value your home in your net worth statement is explained in my post entitled Does Net Worth Include Your Home here. 

This means that 40% of their net worth is in their home. Bob and Carol spend a few hours a month managing their income focused portfolio.

They even sell covered calls when they see a good opportunity for out of the money covered calls on dividend stocks. (Here is my post on covered calls.) 

This allows them to earn about 12% a year in income alone from their stock investments, about 6% from dividends (stocks, MLPs and REITs) and another 6% from out of the money covered calls.

They plan to continue this covered call strategy after retiring while realizing that it may not work during the occasional bear market every few years. Plus, they have some of their investments in cash and bonds.

For this reason, they want to conservatively plan for 9% instead of 12% income from dividends and selling covered calls.

While they also get some increase in value from their stocks, they won’t take that into consideration since some years that probably won’t happen.

Plus, they will have to pay taxes on the covered call income that is outside of their IRA.

Since they plan to have the 12% income from their dividend and covered call strategy in the stock portion of their portfolio, they feel confident they can retire on retirement savings of $800,000 since investment income will pay for much of their lifestyle expenses.

They also add $1,000 a month to their investment account from job income.

By entering Bob and Carol’s data into the Retire Certain Early Retirement Calculator using the lower 10% return (from income alone which is reinvested), we see their retirement savings will grow to almost $1,833,000 by the time they retire at 60.

Click here to read my related post Does Net Worth Include Your Home?

Factors Affecting The Percentage of Net Worth to Have in Your Home

As you can see, there are many variables that affect the percentage of your net worth to have in your home.

The percentage of net worth in your home is based on an overall wealth plan that includes the following factors below.

Lifestyle Expenses

The amount you need to retire is a reflection of how much it cost you to live comfortably. This will be a function of your lifestyle and where you live.

Investment Income

The amount of income you get from investments is also a factor that influences the percent of net worth that should be in your home. This is because investment income affects two major elements of wealth building and retirement planning:

The return you can expect from your investments, even during bear markets, while you are still accumulating wealth for retirement

The amount of money you’ll need in retirement because you’ll need less if you have an income focused investment portfolio

Alternative Income Streams

Investing in higher yielding alternative investments such as MLPs and REITs will also affect your home to net worth percentage for the same reasons listed above. As a general rule, these slightly alternative assets have a much higher yield than dividend stocks.

When You Want to Retire

The amount of time remaining for your wealth to compound before you retire affects the percent of net worth you’ll need to allocate toward investing.

If you have two decades before retiring, you have more time for your investments to grow, and thus need to a smaller amount invested to reach your goals. This means you can have a higher percentage of net worth in your home if you want.

Alternatively, if you have only a few years for wealth to compound before retiring, you’ll need more money to compound, so you may choose to have less of your net worth tied up in your home.

Economic and Market Cycles

Believe it or not, real estate, economic and stock market cycles are one of the biggest influences on how much of your net worth should be in your home. This is important for two reasons.

  1. The economy affects the value of real estate which affects the value of your home. The last thing you want is a huge percentage of your net worth tied up in a depleting (and often expensive) asset, especially during real estate corrections.
  2. The economy affects stock market cycles so they affect the amount your money will grow over extended time frames.

While it’s counter intuitive, following a decade of rising stock prices, you can plan on having lower investment returns over the decade or so.

On the other hand, following a decade of lower than usual stock returns, you can plan on higher returns over the next decade.

When you consider cycles in your projections, you can estimate better how much your money will grow. Doing so will help you know about how much net worth you’ll want in investments vs in your home.


Finally, how much you enjoy living in your home vs how much you want to use your net worth for wealth building opportunities is really the bottom line.

The goal of investing and wealth accumulation is to allow us to live how we want. Your home is so much a part of your life.

Beyond the actual dwelling, there is the convenience and time element of being near work, family or activities.

There is the connection you have with your home.

But this must be weighed against financial peace.

And the reality is that financial peace is a function of the numbers reflected in your investment returns and savings needed to fund a comfortable lifestyle, for life.

Summary – Net Worth Percentage for Home

We all love hard and fast rules and formulas. They require less work on our part.

But as you can see, there is no neat little formula that tells you how much of your net worth should be in your home.

There are only priorities, financial goals and math. Only you can set your priorities and create your financial goals if you want to live life on your own terms.

Decide how much of your net worth should be in your home based on what you want in your life.

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