If you own a home, you may have a powerful financial tool that you can use in retirement as long as you are responsible. I would first recommend that you speak with your Financial Planner should this article interest you.
But having said that, using equity in your home could be a good strategy to soften the burden of retirement income. Particularly if you have built up significant equity.
Equity could be converted into cash for retirement expenses and income, financial leverage to improve your overall wealth or fund a long-term care need. There are a wide variety of ways to use your home equity for regular retirement purposes. Some examples are as follows:
1. Consider Monthly Income from a Reverse Mortgage:
A reverse mortgageis a specific type of home equity loan that is not paid back until you permanently leave your home. One of the options on a reverse mortgage is receiving your loan amount as lifetime payments. Your home equity is then turned into an annuity.
2. Downsize and Buy Income:
Downsizing is usually the most efficient way to cash out your equity. If you want to turn that money into retirement income, a lifetime annuity or conservative investment is one option, but you can also consider other income producing assets such as rental property, bond ladders, dividend producing investments and more.
3. Convert the Equity into Cash
Not everyone has saved quite enough for a secure retirement. However, your home equity is a real asset. You can convert the equity into money for retirement income or expenses.
4. Get a Home Equity Loan:
A home equity loan is a common way to access the money you have built up in your home. However, it can sometimes be difficult to qualify for this loan in retirement due to income requirements and your need to make monthly payments against the loan.
SIDE NOTE: If you can’t qualify for a home equity loan, but want to stay in your house and need access to cash, a reverse mortgage might be an option. There are no income requirements for a reverse mortgage, must be at least 62 and have sufficient equity. Best of all, there are no monthly mortgage payments on a reverse mortgage loan until you die or permanently leave your home (but you must keep up with property taxes and insurance).
5. Use Home Equity to Gain Financial Leverage and Flexibility
Maybe you don’t need cash now. It can still be beneficial for you to consider your home equity as a usable asset.
Having access to a home equity line of credit, cash proceeds from the sale of your home or a reverse mortgage line of credit gives you a greater array of financial options and more flexibility. Think of your home equity as another source of money to use strategically.
Maybe you can’t afford to retire early without starting Social Security, but you know you are better off in the long run by delaying the start of the benefit. You could retire at your desired age and tap your home equity to bridge the time period between stopping work and starting Social Security.
6. Sell the Home and Retain the Cash:
This can be a good option as well, provided you invest the money conservatively. Of course you will want to discuss investing options with your planner.
7. Keep Your Home Equity to Use as a Back Up Plan / Fund Unexpected Events
Perhaps one of the best ways to use your home equity is to hold on to it and only use it if you need to. Use your home equity if you live longer than expected and need additional assets. Or, tap into your equity to fund a long-term care need.
8. Home Equity to Fund a Long-Term Care Need:
Long-term care is tremendously expensive. And, you have no way of knowing if you will need it or not. So, reserving your home equity to fund this expense can be a smart strategy
These are but a few options that can go a long way if properly planned.