Are you nearing retirement and wondering how the equity in your home can help you enjoy a more financially secure retirement? Your home is a large part of your net worth, and it’s important to consider the role it will play in your retirement finances, especially if you’re trying to play catch-up. Check out these four ways you may be able to leverage your home’s equity during retirement.
1. Downside and reduce or eliminate your mortgage.
Are you an empty nester who’s finding that the extra bedrooms in your home no longer make sense? Is taking care of your property becoming too much work? Or are you concerned about your ability to stay safe and mobile in your home as you age? It may be time to consider downsizing your home.
If you’re one of the nearly 10 million homeowners aged 65 and older who still have a mortgage,1 downsizing and using your home’s equity to make a down payment on a less expensive home could help you reduce or eliminate your mortgage altogether, which will add a bit of leeway to your monthly retirement budget.
2. Downsize and invest the proceeds.
If you downsize and buy a less expensive home—or decide to rent—you can take the gains from your home sale and invest them to create a retirement income stream. If you’re concerned about outliving your retirement savings, consider using some of your gains to purchase an annuity, which is a financial vehicle that can turn your lump-sum contribution into a steady source of income.
3. Stay in your home and rent out space.
Perhaps you love where you live and have no intentions of downsizing. There are still ways you can leverage your home in your retirement financial plan! One option is to rent out space in your home to create a steady source of income. Check out VRBO and AirBnb for short-term rental options, or consider finding a longer-term tenant. There are many pros and cons to renting out space in your home, so check out this resource for things to consider and tips to help you get started.
4. Stay in your home and take out a reverse mortgage loan.
Are you at least 62 years old and hold significant equity in your home? A reverse mortgage could be an option for you. A reverse mortgage provides a way for you to live in your home and convert your equity into cash. When you take out a reverse mortgage loan, you receive a loan against your home, and a lender pays you in exchange for equity in it. As your loan balance increases, you receive more money, but your equity in your home decreases. Check out this helpful article to learn more about how reverse mortgages work, including potential advantages, disadvantages and risks you need to know about.
We’re here for you!
Owning a home as you enter retirement gives you options that may help improve your financial security. However, before you make any financial or physical moves, it’s important to talk to your financial advisor and a tax professional. If you have questions about leveraging home equity in retirement, your Bankers Life Securities team is here to help!
1Forbes, Nearly 10 Million Homeowners 65 and Older Are Still Saddled With Mortgage Debt, https://www.forbes.com/sites/brendarichardson/2021/10/29/nearly-10-million-homeowners-65-and-older-are-still-saddled-with-mortgage-debt/?sh=354d4fba684d, 2021.