How Should Pre-Retirees View Illiquid Assets?

May 21, 2020

Some people approach their retirement years owning illiquid assets worth more than their liquid ones. While long-held illiquid assets, such as a business or home, may become highly valued or appreciated over time, it can be wise to be frank and conservative when estimating their worth, especially if an owner wants to sell them to help fund their “second act.”   

It may take months or years to sell an illiquid asset. Moreover, the process of selling that asset often involves expenses: payments to third parties facilitating the transaction, upgrades, or concessions to a new owner, moving costs, and legal fees. A pre-retiree can view a future home or business sale with optimism, but that optimism may be tempered by these realities when the time comes. In addition, liabilities linked to illiquid assets may persist well into retirement; according to Federal Reserve data published in 2019, 68% of the debt of Americans is rooted in homeownership. If you are considering what the sale of an illiquid asset might do for your financial future, think about how to position your more liquid investments. Liquidity is a financial plus at any stage of life, and especially, during retirement.¹