If you own a home, it was probably one of the smartest financial moves you ever made in your lifetime. Not only does it provide a safe haven to live your life, but it is also a compulsory savings account and a valuable asset that increases in value over time.
Your home has given you tax benefits, access to community services (especially important if you have children and are sending them to public school), and perhaps a place to work during the pandemic. It would have been. And a mortgage was a strategic financial decision that gave you leverage and flexibility.
Housing wealth remains at record high levels
Homeowners age 62 and older have experienced a significant increase in home equity, currently estimated at $12.39 trillion.
The housing market has experienced unprecedented growth over the past decade. However, it is important to note that some markets have seen a slight decline in value (relative to long-term growth).
Should you use your home equity to fund your retirement now?
The great financial benefits of a home continue into retirement, especially if you’ve built up significant assets.
That money can now be converted into retirement income, cash for retirement expenses, financial leverage to improve financial options, or funds for longevity, long-term care needs, or other unpredictable events. can.
Consider five ways to leverage your home equity in retirement. Also, use NewRetirement Planner to run through different scenarios and try them out in your own financial planning.
1. Turn your home equity into retirement income or early retirement funds
There are many ways to use your home equity as a regular retirement fund.
Downsize and turn revenue into income
Downsizing is usually the most efficient way to convert stock into cash. If you want to turn that money into retirement income, you might consider turning that money into income-producing assets such as rental properties, bond ladders, dividend-producing investments, or life annuities.
use physical space
It has become somewhat common for people to rent out all or part of their home as a source of income.
- Could you rent out a room in your house to a long-term tenant?
- Have you considered house sharing? Remember the Golden Girls?
- What about renting a house only when you go on vacation? VRBO and airbnb It’s a really easy way to turn your home into income.
- Is there a pool? quickly Can be rented by the hour.
Consider monthly income from reverse mortgage
Although a bit controversial, a reverse mortgage is a specific type of home equity loan that is not repaid until you leave your home permanently. One of the reverse mortgage options is to receive the loan amount as lifetime repayments. A portion of your home equity turns into lifetime income.
2. Convert stocks to cash
Not everyone has enough savings to live comfortably in retirement. However, housing assets are real assets. You can convert stocks into money as retirement funds.
Reduce and utilize assets
Downsizing and relinquishing your home equity will give you a liquid asset that you can invest or spend as you wish. There are many options for downsizing.
- Sell and move to a cheaper home or retirement community
- sell and rent a place to live
- Try the trendy tiny house
- retire overseas
get a home equity loan
Home equity loans are a popular way to access the money you’ve saved on your home. However, it can be difficult to qualify for this loan in retirement due to income requirements and monthly loan payments.
This was a great option when interest rates were at rock bottom.
3. Use your home equity as a backup plan or store it in case of unexpected events.
Perhaps one of the best ways to leverage your home equity is to hold onto it and use it only when needed. For example, you might be doing something like this:
- If you live longer than expected and need additional equity, tap into home equity
- Leverage your assets to fund your long-term care needs
The only problem with waiting to tap into your assets when you really need them is that it gets harder as you get older. Moving becomes more difficult as you get older. And financial transactions become more problematic for older people, whose physical and cognitive functions decline.
Housing assets that provide funds for longevity
One of the most difficult aspects of planning for retirement is predicting how long you’ll live. And thinking about living beyond your means can be stressful. If you are (lucky enough) to outlive your assets, your home equity can be your backup plan for retirement.
Home equity to fund long-term care needs
Long-term care costs a lot of money. And there’s no way to know if you need it. Therefore, setting aside home equity to cover this expense is a wise strategy.
reverse mortgage Towards long-term care
If you can’t qualify for a home equity loan, but want to continue living in your home and need access to cash, a reverse mortgage home equity line of credit may be a viable option.
- When my grandmother had a stroke, she quickly depleted her wealth. She was able to utilize her reverse mortgage line of credit to maintain her lifestyle and fund home health care.
4. Increase your financial flexibility with home equity
Maybe you don’t need cash right now. However, relinquishing your home equity may give you more financial options.
Gain flexibility by having access to a home equity line of credit, cash proceeds from the sale of your home, or a reverse mortgage line of credit. Think of your home equity as another source of capital that you can use strategically.
Here are some ways to increase the use and flexibility of your home equity.
Home Equity Loan Line of Credit:
A home equity line of credit is an efficient way to access equity. You pay interest only on the money you use, not on all available funds.
A line of credit simply provides a financial option. It’s a pool of money that you can access as needed.
- Suppose your college tuition is paid this week. And you were going to sell the stock to pay the bill. But the majority of that account has to do with falling stock prices. If now is not the time to sell, you may want to wait for the stock price to recover and consider paying the bill from another pool of funds, such as a mortgage line of credit.
- Or perhaps you want to keep your home equity now and use it only for future longevity or long-term care needs. Establishing a home equity line of credit now gives you maximum flexibility and ensures you have access to funds when you need them.
Sell your home and keep cash:
Of course, if you’re ready to move out of the house, downsizing your equity back into cash is the most flexible option.
- June has been a nurse for 25 years and, like many people in the profession, is exhausted and plans to retire this year at age 62. But even if her income increases, she doesn’t want to start her Social Security that early. Retirement benefits become more realistically affordable. She is choosing to leverage her housing equity by downsizing to a 55+ community. A big advantage is that the complex has excellent facilities. The proceeds from the sale of her home will allow her to cover the period between quitting her job and starting her Social Security.
5. Preserve your home property for your heirs
For better or worse, many people want to leave their home equity to their heirs. Billions of dollars are passed through real estate to adult children each year. And a recent study found that people who expressed a strong desire to leave an inheritance of at least $10,000 were more likely to sell their home with the intention of making it part, if not all, of that inheritance before they died. It turns out that the sex is much lower. .
This is true even if the value of your home exceeds the amount you want to inherit.
Inspired by these home equity options? Give them a try!
of NewRetire Retirement Planner You can easily explore these options for using home equity as part of your retirement plan.
