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Canadian $20 bills folded to look like a house.

Olga Utlyakova/iStockphoto

Calculating personal net worth seems simple enough. Just add up all your assets, subtract debts from the total – and voila. You know what you're worth.

But hold on. Under which column did you plunk your home? If you answered "asset," you might want to rethink that choice – that is, if you're calculating net worth as a way to determine how much money you need to save for retirement.

Although, yes, you own all or at least part of your residence, so it's considered a possession, it's a mistake to include it as part your retirement income along with stocks, bonds, pensions and government Old Age Security. At least that's how Adrian Mastracci, a portfolio manager and president at KCM Wealth Management in Vancouver sees it.

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"I really try to dissuade clients from thinking the house is part of the retirement capital," he says. "It might be arbitrary on my part, but I find that if the client doesn't look at it as part of the retirement plan, he or she is more focused on saving."

In other words, owning a home can give a false sense of financial security. Someone with $25,000 in debt and $40,000 worth of home equity, might be tempted to think they're up $15,000. While technically true, getting at that money is far from easy and can even be costly in some cases. We think we have more accessible money squirrelled away than we do.

It's little wonder many Canadians might want to slip on rose coloured glasses and view their home as a retirement nest egg, though. As a nation, we're not exactly stellar savers. A 2014 Conference Board of Canada Report indicated that 60 per cent of survey respondents hadn't saved enough for retirement and one third weren't sure when they'd be able to retire at all. And a McKinsey Global Institute study released yesterday indicates Canada's household debt-to-income ratio rose to a record 162.6 per cent in the third quarter of 2014, outpacing most developed countries.

The house – which on average accounts for 51 per cent of Canadians' total net worth, according to a 2012 Bank of Montreal Retirement Institute survey – winds up looking like the only way to finance life after work.

Darren Coleman, senior vice-president and portfolio manager with Raymond James in Toronto, says the problem is that many people haven't fully considered what it actually means to have money tied up in a house. It's a hard asset, not a liquid one.

"People need to realize that yes, home equity is a valuable part of the equation, but it's also probably the hardest one to access," he explains.

Unlike stocks, bonds and other assets that can be bought and sold as needed, most people only see income from their home when they sell it. What's more, Mr. Coleman says many tend to overestimate their home's worth and underestimate how much it costs to sell it. Real estate, legal and land transfer fees can take a large chunk out of what many assume is going to be, say, a $400,000 to $500,000 windfall.

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Historically, homes have been seen as a less risky, more conservative investment. But some people are beginning to wonder what will happen when the baby boomers start selling their four-bedroom, two-car-garage homes en masse. The concern is that as houses begin to flood the market, not only will cash-strapped first-time home buyers not be able to afford them, the supply will exceed the demand.

Sellers who expected to cash in big and live off the proceeds by downsizing could be in for an unsettling surprise.

Judith Cane, a money coach with Money Coaches Canada in Ottawa, says she has already seen another development in mature neighbourhoods near her. Younger home buyers have different housing tastes than the boomers ready to sell, and dated homes can languish on the market. New furnaces, roofs and windows are nice, but without granite kitchen counters, the houses are not as enticing.

The reality is, no one knows exactly how the housing market will look 10, 15 or 25 years from now. Ms. Cane herself saw her house value drop drastically in 1994 when her family moved to Ottawa from Ottawa.

"Good luck with thinking you have a $900,000 house. Who knows what's going to happen?" she cautions.

Even so, there are ways to make a housing asset work.

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Home owners can sell later in retirement and downsize to a smaller residence or a cheaper community.

Or the sale proceeds can be earmarked for a nursing home when it comes time for an assisted-living arrangement. The house equity is only used for the final years, and the money is simply being swapped for a new living space when the retiree no longer needs to fund lifestyle costs, such as a boat or a trip.

In some very rare cases – and for very lucky homeowners – a house can actually pay for retirement, Mr. Mastracci says. But they have to be considered the lottery winners of the real-estate world.

"It depends on where you are, but in Vancouver if you've got a shack, you can probably get a couple million bucks just like that," he says of the West Vancouver neighbourhood, where a tear-down can go for $2.5-million.

For most people who want to live off the equity in their homes, however, they turn to debt: home equity lines of credit and reverse mortgages, in which the homeowner takes out a loan against the house and spends the money. Interest, which balloons over time, is paid when the loan comes due, the house is sold or the owner dies.

Mr. Mastracci cautions that loans such as reverse mortgages should only be used as a last resort. None of his clients have them and he wouldn't want them to since they're essentially paying extra interest on their homes. It's a costly way to go. Instead, he encourages clients to concentrate on saving, investing and staying out of debt as they reach their senior years.

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And that house? It's persona non grata on a net-worth spreadsheet.

"Stop thinking about that house as a saviour. Even if you downsize, you're probably not going to realize enough income to make retirement and a smaller house fit," he says.

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