Considering Your Home Equity as You Approach Retirement
A recurring question we hear from clients as they approach retirement pertains to their personal residence. To borrow (somewhat) from Shakespeare, what we typically hear is, “To sell, or not to sell, THAT is the question!”
It’s a great question that’s, oftentimes, not easy to answer. It is, however, a very significant decision. Consider this: As most people approach retirement, one of their primary assets is their home. According to 2014 U.S. census data*, home equity comprised 66% of net worth for people between the ages of 65 and 69. With increasing life expectancy, access to this portion of wealth could play a major factor in many people’s quality of life.
How Can You Access the Equity in Your Home? Here are a Couple of Ways:
1) Selling: After paying taxes that may be due, the proceeds from the sale should provide a cash payout you can invest to provide additional income during retirement. While this approach sounds simple, it oftentimes is not. There are many factors to consider when deciding to sell your home, including a few considerations mentioned below:
- Is there a suitable replacement home that meets your needs?
- Are there emotional reasons or family considerations that could create tension if the house is sold?
- Is renting a viable option, and are rental rates affordable?
2) Reverse mortgage: A reverse mortgage allows qualified homeowners the ability to take out a loan, either in a lump sum or as a line of credit, against the value of their home (assuming their home equity is high enough). The difference between a reverse mortgage and a traditional mortgage (or home equity line of credit) is that repayment of the reverse mortgage loan typically is not due until the homeowner sells the property or passes away. While a reverse mortgage can be expensive, complicated and require financial counseling before executing, it can work well in specific situations. We always recommend that clients consult their financial advisor before going down this path.
Determining what to do with a family home is an important decision that will need to be addressed, and the solutions will be different for each person. So don’t be afraid to tackle the question, and most importantly, don’t be afraid to get help from your financial advisor!
*U.S. Census – Wealth, Asset Ownership & Debt of Households Detailed Tables: 2014