The Retirement Solution Wasn't Renting Out Their Home

This case study is based on an actual client engagement. Names and identifying details have been changed or omitted to protect client privacy. Financial impacts are modeled estimates based on the assumptions used in the planning analysis and are not guarantees of future results.

Client Snapshot

Why They Engaged Me

The husband worked in financial services, but that did not make him confident about his own retirement. Years of employment disruption, caring for a parent, prior retirement-account withdrawals, and other financial decisions had left the couple with less accumulated retirement savings than he believed they should have. At our first meeting, he described himself as "panicking a little bit" about whether their money would last.

His concerns went well beyond whether they could afford the retirement lifestyle they wanted. He feared they might eventually exhaust their resources and expected that Medicaid could become their fallback for care later in life.

His wife approached the future differently. She loved her work and was prepared to continue working. Her approach was more pragmatic: keep working, keep saving, and deal with the future as it came.

What they lacked was a clear answer to a fundamental question: Could they actually retire, and what would it take to get there?

One solution had begun to loom particularly large. Rent out their longtime family home, move to a lower-cost community, and potentially rent a home there during retirement.

The family home meant much more than its market value. It was where they had raised their family, and it had been specifically chosen so they could care for the husband's father during the final years of his life. As the planning progressed, it also became clear that converting the home into a rental carried more emotional weight than was initially apparent. The wife was reluctant to make real estate a significant part of their retirement strategy.

Before making a decision that consequential, we needed to answer a different question: Did they actually need to do it?

What the Plan Revealed

They came into planning expecting that a few large changes might be necessary. Instead, the opportunity was spread across many smaller decisions that had never been analyzed together.

Retirement timing. Retirement-plan contributions. Debt. Support for adult children. Social Security. Roth conversions. Insurance. Investments. Real estate. None was the entire answer. Together, they changed the trajectory of the plan.

During our initial meeting, the husband expressed surprise at how many areas would be evaluated. He had expected there might be only "two or three things" to address. That is often where the value of comprehensive planning begins.

Planning Opportunity #1: Work a Little Longer, Not Forever

Planning Discovery

The wife had largely assumed she would work until age 70. She enjoyed her career, but she was also working approximately 60 hours a week. Her retirement-age assumption was influenced in part by a familiar rule of thumb: continue working and delay Social Security to maximize the eventual benefit.

The planning question wasn't: "How long can you possibly keep working?" It was: "What is the smallest reasonable change in your working years that meaningfully improves the plan?"

Recommendation

Rather than simply assuming another decade of full-time work, the plan modeled the wife remaining at Children's Hospital for one additional year and then transitioning to consulting for approximately four years.

Planning Impact

This became the single largest improvement to the retirement plan and materially changed the long-term outcome.

Consulting also created additional flexibility. Depending upon income and circumstances, self-employment could provide access to retirement-plan options such as a Solo 401(k) or SEP IRA and create additional opportunities for tax planning.

The answer wasn't "work forever." It was to use a relatively short extension of earned income strategically.

Planning Opportunity #2: Save More While Earnings Were Still High

Planning Discovery

The clients still had valuable high-earning years ahead of them. Rather than viewing retirement savings as something that was already too far behind to fix, we looked at what additional contributions during their remaining working years could accomplish.

Recommendation

Increase retirement-plan contributions and make better use of the remaining high-income years.

Planning Impact

The clients increased their retirement contributions during the planning process. The plan showed that maximizing contributions during the remaining high-earning years improved compounding and increased the probability of long-term plan success.

This wasn't a dramatic strategy. It was simply a good decision that became more powerful when combined with the others.

Planning Opportunity #3: Pay Off the Right Debt

Planning Discovery

"Pay off your debt before retirement" sounds like sensible advice. But financial planning requires another question: Which debt?

The household had a variable-rate HELOC while also holding inherited IRA assets earning a relatively modest return. At the same time, their primary mortgage carried an interest rate of only 2.99%.

Treating those two debts identically would make little economic sense.

Recommendation

Use approximately $17,000 from the inherited IRA to eliminate the higher-cost HELOC, improving cash flow and eliminating an unfavorable interest-rate spread. The inexpensive 2.99% mortgage was a different decision and did not need to be attacked simply because retirement was approaching.

Planning Impact

This improved near-term household cash flow and removed variable-rate debt. It also illustrates an important planning principle: Rules of thumb are starting points, not financial plans.

Planning Opportunity #4: Revisit How Long Parents Should Support Adult Children

Planning Discovery

The couple was continuing to help with an adult daughter's student-loan payments. Helping children financially isn't inherently right or wrong. But in a household worried about its own retirement security, that support needed to be considered as part of the complete plan.

Recommendation

Continue the agreed support through 2026 and then allow their daughter to assume responsibility for her remaining student debt as her own career progressed.

Planning Impact

The recommendation reduced an ongoing draw on the parents' cash flow while still allowing them to provide meaningful support during the transition. Again, this was not the recommendation that "saved retirement." It was one more decision moving in the same direction.

Planning Opportunity #5: Don't Do a Roth Conversion Just Because Roth Conversions Are Popular

Planning Discovery

Roth conversions are frequently presented as an almost universally attractive retirement-planning strategy. So we modeled them. Four different conversion strategies were evaluated. The results were very different.

A conversion strategy using the 12% tax bracket produced approximately $100,000 of modeled improvement. But converting into the 22% bracket reduced the projected outcome by approximately $275,000. Later conversion scenarios also produced negative modeled results.

Recommendation

Don't force a Roth-conversion strategy simply because it is popular. Revisit the opportunity in approximately four to five years when income, tax rates, account balances, and other circumstances may be different.

Planning Impact

Sometimes financial planning identifies something you should do. Sometimes its value is identifying something you should not do, yet.

The Strategy They Thought They Needed

Before the plan came together, the husband believed renting their existing home might be one of the few ways to make retirement work. The concept was straightforward:

• Keep the family home as an investment.
• Turn it into a rental.
• Move to a lower-cost community and potentially rent a less expensive home for themselves.

Rather than dismissing the idea, or assuming real estate must be attractive because the home had appreciated, we analyzed it as an investment.

What Would Their Home Actually Earn as a Rental?

The home had an estimated market value of approximately $800,000, with a mortgage of roughly $434,000 and approximately $366,000 of current equity. The mortgage carried a favorable rate of about 2.99%.

See the Year 1 rental cash-flow analysis.

In other words, the proposed retirement-income property would actually require the retirees to put additional money into it each year, based on the assumptions used. And because this was an older property, maintenance and repair risk also needed to be considered carefully.

What If There Were No Mortgage?

This is where the analysis becomes even more revealing. The low-rate mortgage wasn't the fundamental problem. Imagine that the clients waited until the mortgage was completely paid off. They would then have approximately $800,000 of equity tied up in the property.

Yet the property's estimated Net Operating Income was only about:

~$20,000 per year

That means an $800,000 debt-free property would produce an operating return on equity of only about:

2.5% before income taxes.

Yes, the home could appreciate over time. But appreciation does not provide cash for groceries, healthcare, travel, utilities, or other retirement expenses unless the owners borrow against the property or ultimately sell it and access the equity. For retirees, cash flow and access to capital matter.

An asset can appreciate while still doing a poor job of producing the income the household needs. And with a return on equity around 2.5%, the clients would be committing substantial capital to an illiquid asset while generating an operating return that may not even keep pace with long-term inflation.

The real-estate analysis answered the question clearly: This was not an attractive income-producing use of their home equity.

Sometimes the Best Real Estate Recommendation Is Not to Become a Landlord

By the time we completed the broader planning work, something important had happened. The retirement picture had changed.

The clients had:

• increased retirement contributions;
• eliminated higher-cost variable debt;
• established a more deliberate timeline for financial support of an adult child;
• reconsidered retirement timing;
• created a transition from full-time employment into consulting;
• evaluated Social Security rather than relying solely on rules of thumb;
• tested Roth conversions rather than assuming they were appropriate;
• coordinated investment and insurance decisions; and
• identified risks that could still threaten the plan.

The completed plan produced an approximately:

85% Monte Carlo probability of success

with approximately:

$3.2 million projected at life expectancy under the assumptions used

including an assumption that the clients receive only 80% of currently published Social Security benefits.

They didn't need to turn their family home into a rental to make retirement work. And after we analyzed the property itself, there wasn't a compelling investment case for doing it anyway.

For the wife, that was a relief. As the planning progressed, it had become increasingly clear that another real-estate strategy was not a direction she wanted to pursue.

For the husband, it removed the pressure of advocating for a strategy he had believed might be necessary.

The real-estate analysis didn't result in a real-estate recommendation. It gave them permission to take real estate off the table.

Planning Also Showed What Could Still Go Wrong

A successful retirement projection doesn't mean every financial risk has disappeared. Once the base retirement plan was working, we could identify the risks most capable of knocking it off course.

Disability was significant. The modeled impact of a disability reduced projected wealth by approximately:

Long-term care (LTC) scenarios also materially impaired the plan.

Those findings shifted the conversation from: "Can we retire?" to: "Now that we can see a path to retirement, what could derail it, and what should we do about those risks?"

That is a very different planning conversation.

Planning Fee in Perspective

The fee for this comprehensive planning engagement was:

$8,000

Unlike some financial plans, there wasn't one multimillion-dollar recommendation responsible for changing everything. That is what makes this case important.

The value came from coordinating a series of decisions involving:

work + savings + debt + family support + Social Security + taxes + investments + insurance + real estate

Individually, many of these decisions looked relatively small. Together, they changed the clients' understanding of what retirement could look like.

They entered the planning process worried that retirement might require a major sacrifice: leaving their longtime family home, converting it into a rental property, and moving to a lower-cost community where they might rent during retirement.

They finished with an 85% modeled probability of plan success and approximately $3.2 million projected at life expectancy under the assumptions used.

And the real-estate strategy they thought they might need turned out to be neither necessary nor particularly attractive.

That is a different way to think about the value of an $8,000 financial plan.

The Bigger Picture

This case wasn't solved by finding one great investment. It wasn't solved by buying real estate. It wasn't solved by paying off every debt. It wasn't solved by automatically doing Roth conversions. And it wasn't solved by telling someone to work until age 70.

It was solved by testing assumptions and coordinating many decisions that had previously been considered independently.

The result was not simply a better projection. One spouse gained greater confidence that retirement could work. The other gained a clearer picture of a future that didn't require simply putting her head down and working indefinitely.

And together they gained something they didn't have when they started: Options.

From "How Will We Ever Retire?" to a Plan They Could See

At the beginning of the engagement, retirement felt uncertain enough that a major lifestyle change appeared necessary. By the end, it didn't.

The clients could see:

• what needed to happen;
• which decisions mattered most;
• which commonly suggested strategies weren't appropriate for them;
• what risks remained; and
• what retirement could realistically look like.

Most importantly, they didn't have to solve retirement by turning a home carrying decades of family history into a rental property and moving to a lower-cost community where they might themselves become renters.

Sometimes the most valuable recommendation isn't finding something new to buy or invest in. Sometimes it's discovering that you don't have to do the thing you thought was your only option.

See what a comprehensive financial plan looks like.