In this episode, Dr. Rachael Van Pelt explains why retirement plans that stretch 35 to 40 years but still treat the house as a neutral “reserve asset” is a major problem. And why, your retirement date and where you live are biological inputs not just financial inputs. Learn about the Backup Plan Paradox and why your home needs to be stress-tested alongside your retirement portfolio.
Her financial planner ran the Monte Carlo projections and predicted her money would last to age 90. Then she lost her job at 60, and they re-ran everything. The retirement strategy looked good, except for one line item: they left her primary residence listed as her "reserve asset for long-term care." In this episode, Dr. Rachael Van Pelt explains why retirement plans that stretch 35 to 40 years but still treat the house as a neutral “reserve asset” is a major problem. And why, your retirement date and where you live are biological inputs not just financial inputs. Learn about the Backup Plan Paradox and why your home needs to be stress-tested alongside your retirement portfolio.
👉 Try Dr. Van Pelt's free Rightsizing Decision Coach tool at coach.rightsizeretirement.com — it takes about 5-10 minutes and scores your home on 4 domains: Body, Brain, Bank, and Base.
Chapters
00:00 When a Forced Early Retirement Changes Plans
03:43 The Missing Variable in 40-Year Retirement Plans
05:38 Your Home is a Health Variable
06:43 Health, Not Money, Sets Your Retirement Date
07:48 Sequence-of-Returns Risk for Your Body
08:46 The Backup Plan Paradox: Using Your Home as a Reserve
13:08 Stress-Test Your Home Before Meeting With Your Planner
Hey, hey, welcome back to Next Act Ninjas, the go-to podcast for mastering your health and wealth longevity. I'm your host, Dr. Rachael Van Pelt. I'm a healthspan scientist with 30 years of experience studying successful aging. Today I'm diving into the retirement plan many people are rethinking right now due to increases in longevity. And I want to talk about the one asset almost nobody is adequately taking into account.
About a year and a half ago, one of my clients worked with a financial planner that she genuinely trusts. And they ran the Monte Carlo projections on her retirement plan. Those are the statistical algorithms planners always use to test whether retirement funds are going to last as long as we need them to. The stats showed a 91% probability that her money would last through age 90, which is great. Erin was pleased. She felt like she'd done everything right.
But then, four months later, her company restructured and her job was gone. Now she'd planned to work until 65, but she was only 60. So her retirement plan needed to last at least an additional five years, and she was going to accrue less money. So she and her planner, of course, had to go back to the drawing board. They re-ran the numbers, trimmed her travel budget, adjusted for social security timing, tightened her withdrawal rates, that sort of thing. So the plan still worked.
However, there was one line item that was tucked away deep in the plan that nobody touched. They didn't consider it during the first pass or the second pass at her retirement plan. And it was just this one simple line item that said her primary residence would serve as her "reserve asset for long-term care". Which on the surface sounds great. Erin lives in a nice two-story home on a half-acre lot. She loves her home. She plans to stay there.
However, her master bedroom is upstairs. The laundry is in the basement. It has a steep driveway that ices over every winter. Her doctor, her dentist, her grocery store, her closest friends, they're all at least 20 to 30 minutes away by car. When she told me about this situation, I asked her one question. I asked, what does the retirement plan assume about your body in this house at 75? And she didn't have an answer. Of course, neither did the plan. And that's a major problem with most financial plans these days.
Now, the good news is financial firms are finally starting to extend retirement plans out to 35, even 40-year time horizons. They're taking into account longer lifespans and forced early retirement. They've devised all these complex algorithms that account for inflation and market crashes, volatile annuities, long-term care. But what you won't find in most plans is a person's health and their house fit. Even though, for most people, home is quietly deciding how many of your retirement years you're going to stay strong and healthy.
Which is why I built my Rightsizing Decision Coach tool. It's this easy way for you to assess whether your home is helping or hindering your Next Act.. But there's another way to use it that you might not have thought of. Take the assessment before you meet with a financial planner. I'm going to explain why in a minute. And just a reminder, you can find that tool at coach.rightsizeretirement.com. I will leave a link in the show notes.
But what got me thinking about this topic this past week is I saw a story that ran on dozens of local news sites recently. The headline read something along the lines of longevity is moving from a demographic trend to a financial priority for people. And the core argument is great. Life expectancy in the United States has gone up. We have to account for increases in longevity when we plan for retirement.
But unfortunately, the classic 4% withdrawal rate was only designed for a 30 year retirement. So if people keep living longer, it multiplies the risk that we're going to outlive our retirement savings. Moreover, if there's a bad market in the first few years after we retire, it's going to do more damage because the money has to last longer. Likewise, long-term care costs will hit harder if there are more years to support.
So the financial industry is starting to respond to that extended lifespan. They're doing it by implementing things like dynamic withdrawal guardrails, cash reserves to ride out downturns, long-term care insurance, that sort of thing. And those are all reasonable strategies, and I wouldn't argue against any of them.
But when I read these articles the same way I used to read scientific manuscripts and grant proposals looking for what isn't there, what I found was missing in those financial articles about funding 30 to 40 year retirements, the home. It never shows up as an input variable. Yet for many of you, it's the single largest asset you own. So it's a critical variable. But not just critical to your financial health, it's critical to your physical health. So why isn't it in the model?
Well, we have to keep in mind that many of these articles are produced by companies that sell long-term care policies or other financial products. That's not a conspiracy theory, it's just a reminder that a company that buys insurance policies, for example, is going to naturally see longevity as an insurance problem. A planner is going to see it as a portfolio problem. I spent 25 years studying how people age, so I see it as a biology problem. And biology is influenced heavily by our environment.
You might think that biology of aging is mostly driven by genetics. It's not. Only about 20% of how you age is predicted by your genes. The other 80% is driven by environmental factors, things like your home environment, how well you sleep, how much exercise you get, and so forth. We call these epigenetic factors. And it's why I always say that your home is a health variable. And it's why we can't keep just thinking of it as a financial variable, an asset that we're going to tap into when push comes to shove, or we're just going to leave as a legacy to our kids. It may in fact serve those functions, but in the meantime it may also impact your health dramatically.
But let's get back to the financial models. Here's the data that stopped me. It's not about money at all. A Society of Actuaries survey, it found that 59% of retirees left the workforce earlier than they'd planned. And the most common reason they left wasn't because they'd hit their financial number, it was because of their health. Which means for many of us, our retirement date isn't a financial input. It's a biological input.
But I have to be careful not to overreach here. That survey didn't say anything about houses. What it did say is that health drives the timeline. What I'll add to that is your home impacts your health. The stairs you climb or you avoid. How much your environment facilitates movement, whether social connectivity is down the street or 20 minutes away, all those things shape the trajectory of your Body, your Brain, and your Base year-over-year. So the home isn't sitting outside of the retirement equation. It's sitting upstream of the most important input, your health.
Financial planners have this concept called sequence-of-return risk. Meaning the order in which you draw on your assets matters as much as the average return. So a market crash in year one of retirement is going to do far more damage than the same crash in year 15 because you're withdrawing when the portfolio is down.
Well, your body works the same way. A fall, a bad knee, a cardiac scare is like a market crash. The same event impacts your retirement very differently depending on when it hits. If it happens after a Rightsizing move in a home that already fits, it's a minor setback. But if it happens while you're still living in a home with a steep driveway and the bedroom upstairs, that event is going to force you to make a decision from a bad position. That's why it's so important to make a proactive move while you're still in your Go-Strong years, that stretch where you still get to set the order of returns.
But let's get back to Erin's situation and how her home was being treated in her financial plan. Remember, the plan listed her primary residence as simply a "reserve asset for long-term care". Now, to be fair to her planner, that's a smart, defensible strategy. A lot of planners assume this default strategy. I mean, they figure you have to live somewhere, right? And houses tend to appreciate and they provide tax advantages. And if care costs show up late in life, you just sell the house or take out a reverse mortgage against it. The equity pays for the care. It's a "reserve" fund that you get to live inside. It makes perfect sense, at least on paper.
But that logic rests on one hidden assumption. It assumes your health is the same no matter where you live. That the house is a neutral container. It just holds the equity until you need it. Unfortunately, your house, your neighborhood, your community is not neutral. It's not only impacting your cost of living or your rainy day reserves, it's impacting your physical body, your mental health, your social connectivity, your access to health care, how easily family can visit, which means you're holding the reserve for a crisis the asset itself could make more likely. I call this the "Backup Plan Paradox". Your home is the backup plan for a problem that it's potentially creating.
And there's a second cost that's hiding inside the first. Equity you hold until a crisis gets hit with the "fire sale" tax. You get forced to sell in whatever season the crisis just happens to hit. You're forced to sell your home "as is". You don't have any time to spruce it up, stage it, anything like that. What's worse, you're forced to sell on somebody else's timeline, such as a hospital discharge planner's timeline. Last resort equity funds a crisis move. It almost never funds a forward-thinking healthspan move.
When I talked this through with Erin, she pushed back at first, which I totally respect. I probably would too. I'm forever the skeptic. She said to me, "I feel fine. I'm in great shape. I can handle my home." And she can right now. But that's her "Phantom Body" talking. I covered that in episode 106. In short, it's this outdated map of your body that's quietly driving your planning. And while that map isn't wrong about your body today, it is wrong about the slope of your body's age-related decline. It doesn't know what your future self is going to feel like.
Erin went on further to say: "This is the one piece of my retirement plan that feels safe, secure", which is the whole problem in a nutshell, isn't it? Everything else in her plan was stress tested statistically in those fancy Monte Carlo projections that her retirement planner used. While the home was plugged in as a constant variable, it was just assumed to be a "safe" option.
And look, I'm not immune to this by any means. I know the math better than most people, and I still feel the pull to treat my home as a set-it-and-forget-it part of our retirement plan. I convince myself every weekend that I can 100% handle the heavy yard work and the heavy driving required for living in the mountains. And I can today, which is why it's so easy to keep kicking that can down the road, thinking I'm just going to wait until I can't do it anymore. But the problem with this approach is that it assumes I'm going to have the luxury to move on my own terms when the tipping point hits. More importantly, this approach doesn't account for the way home burdens can shorten the time to that tipping point, accelerating age-related declines.
Now, Erin hasn't decided anything yet. Her story's still evolving, but what I think is great is she's finally asking the right questions. She's no longer just asking, "how long will I live and will my money last?" Or even "how long can I successfully age in place?" She's asking a much more sophisticated question now. She's asking, "how long, if at all, will my current home support my health and wealth longevity?" She's finally stress-testing those initial assumptions that she and her planner made about the house.
In fact, this is exactly where that Rightsizing Decision Coach tool comes in handy. Your planner is obviously going to have a detailed picture of your financial situation, the Bank domain. What they're not going to have is a picture of the other three domains: Your Body, your Brain, and your Base, which is how well the home supports your well-being. My Decision Coach tool gives you that kind of detail. I'll of course put a link in the show notes so you can use that before you speak with your financial planner next.
But be sure to ask your planner something along the lines of: "what if my home is no longer a good fit five years from now? How does my retirement plan fare if we throw a move in the mix?" A good planner is going to welcome those kind of questions.
And if a part of you feels defensive right now, I totally get it. Most of us grew up believing that a paid-off house was the finish line. It's a tangible asset after all. It's a safe roof over your head, something to be proud of. You worked hard, you were frugal, you diligently paid down the mortgage for years. Perhaps it's even where your kids grew up and it holds fond memories. So when you question it, it can feel like you're questioning whether you lived your life right or you made good decisions, which of course you did. The house served its purpose for the chapter it was built for. The question now is whether it's going to support your Next Act.
I'm not saying that your home isn't a good fit. For some of you, it certainly is. Rightsizing may simply mean making a few home modifications so you can thrive in place. For some, it might mean a smart downsize within the same community. For still others, it could mean finding a completely different home in a totally new location. The Decision Coach isn't going to tell you whether you need to move or where to move. What it will show you is where there's friction so that you can think clearly about your specific situation rather than just relying on your gut feeling. Or worse, just leaving things to chance and age-related decline.
That being said, I think you have to get out of your head and into your heart when it comes to imagining your future self in your future home environment. It's good to distance yourself from the retirement planning math and start thinking about what it's going to feel like to keep enjoying a high quality of life. And pay attention to just how few remaining Thanksgivings or Christmases that you have left and what memories you want to create in the meantime.
I think that framing is really important. I got that framing from a finance strategist that I love, Brady Mullen. I had him as a guest on the show a few years ago when I first launched my podcast. He would tell his older clients to picture a family gathering in the not so distant future. Maybe it's a Thanksgiving where you're sitting on the couch rather than bustling around the kitchen. A family member stops in to check whether you need anything before they run back into the kitchen. Imagine what that feels like. The people in your life bustling around you with more energy than you've had in years. And imagine you only have maybe 10 of those Thanksgivings left. How does that feel? Does that time clock change your approach to how you think about retirement today? What about where and how you want to live out those last 10 or 15 Thanksgivings or Christmases?
The longevity math in retirement planning calculates how many years your money needs to last. The longevity math that I want you to run is how many of those years you'll be bustling around the kitchen with your family versus just sitting on the couch hoping they check on you.
The financial world is right that you're likely to live longer than you planned for. They're right to help you extend your wealthspan. But lifestyle longevity isn't just about managing your wealth. It's about managing your health and functional independence. And your home contributes to both of those. You're not going to be able to save your way out of a home that's quietly accelerating aging.
That's why you want to stress-test your home the same way you'd stress-test your portfolio. And if the house really is your backup plan, ask yourself: is it a backup plan you'd choose for future you? Or is it simply the default that was assumed by some retirement strategy session that you drafted long ago? Make a conscious decision while you still have a say in the sequence of events and the outcome.
Again, don't forget about that Rightsizing Decision Coach tool. I'll leave a link in the show notes. You can find it at coach.rightsizeretirement.com. It's free. It just takes five to ten minutes. And it will show you exactly which domain is your biggest bottleneck right now. Take that assessment when you meet with your financial planner next. Until next time, my friends, live well, love more, age less.