Do you remember buying your house? Looking for just the right one, negotiating a price, sitting in the lawyer's office signing your name in dozens of places ... all so at the end of it, you had a home -- an investment not just in your present, but in your future.

Imagine doing that repeatedly.

Some friends of mine -- neither of whom is in real estate -- own nine houses. You heard me -- nine. They live in one of them, and the other eight they rent out to young professionals (that would be me), poor graduate students, and single mothers. They refer to their collection of houses as "their retirement" -- and they aren't alone.

Although few people own nine houses, many Americans are relying on their homes as a source of income in retirement, either through downsizing to a smaller property or through sketchier transactions like reverse mortgages. Between 1997 and 2006, housing prices increased an average of 83%, leading more people to assume their equity would see them through their retirement years.

But in the last year, things have taken a turn for the worse. Not only has the stock market dropped 15% since this time last year, but housing prices are down on average 14.1%.

The housing bubble isn't the only thing that's popped. The 2008 Retirement Confidence Survey just showed the biggest one-year drop in its 18-year history.

10% down
What does that mean for individuals? In a study of baby boomer retirement security, Dartmouth College economist Annamaria Lusardi and her colleagues found that home ownership was a substantial component of most respondents' net worth: one-third on average.

They further calculated that an average national housing price drop of 13.5% -- less than we've already experienced -- would decrease the net worth of the boomers they surveyed an average of 10%.

A loss of 10% of net worth on the cusp of retirement -- which doesn't include stock market losses or the losses people will incur if the housing market continues to fall, as many analysts think it will -- can have a big impact on a retiree's ability to live the life he or she imagined.

Neither the stock market nor the housing market looks to return to its highs anytime soon. So what should we do?

A little means a lot
Lusardi and her colleagues found that any amount of planning for retirement had a significant effect on the bottom line of the people she surveyed. Take a look at this comparison of net worth between different levels of retirement planning:


Average Net Worth

Hardly at all


A little




A lot


While planning "a lot" clearly had the greatest effect, even planning "a little" created a 13% increase in net worth. That can make a big difference, especially if the markets, housing, and otherwise, don't exactly go your way.

Even if you're on the cusp of retiring, you likely have decades left to live off of your savings. So whether you've got decades until retirement or only a few years, start now by calculating the amount you'll need, saving money, and investing for the long haul.

Start here
A good place to start is a low-cost index fund. It'll give you broad diversification in large-cap stocks with returns close to those of the market as a whole. The SPDRs (AMEX:SPY) exchange-traded fund, for example, will give you exposure to blue-chip stalwarts such as cigarette maker Altria (NYSE:MO), IT specialist IBM (NYSE:IBM), and health-care giant Johnson & Johnson (NYSE:JNJ).

You can gain exposure to other sectors of the market via specialized index funds. For example, the Vanguard Small Cap Growth Index (VISGX) will invest you in online travel agent (NASDAQ:PCLN), genetic research firm BioMarin Pharmaceutical (NASDAQ:BMRN), and iron ore and coal producer Cleveland-Cliffs (NYSE:CLF).

As you decide how to invest your money, consider how many years you have until retirement, how much you can save in the meantime, and what kinds of returns you need to achieve your goal -- and what kind of risk you can tolerate.

The Foolish bottom line
Your house may be your castle, but it's not likely to take care of your retirement for you.

If you'd like help creating your retirement plan, consider the Rule Your Retirement investment service led by Robert Brokamp. You'll have access to a robust retirement calculator, all back issues, model portfolios, and the support of other subscribers on our boards.

You can try the service free of charge for 30 days -- with no obligation to subscribe. Click here for more details.

Julie Clarenbach owns shares of SPDRs, as does The Motley Fool. Johnson & Johnson is a Motley Fool Income Investor recommendation. is a Stock Advisor choice. BioMarin is a Rule Breakers selection. The Fool has a disclosure policy