Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Home Equity for Retirement Income
Have you looked up the value of your real estate lately? Home values have gone up tremendously over the past few years. And it is excellent news for retirees, in today’s post, we will discuss why.
Today we will be talking about what the retirees should do when it comes to using home equity for retirement income, which they would need for the long term.
Many people are underprepared today to get the income that you need.
When you look at traditional retirement income plans most of the time, an individual would think how much money do I have in stock, bonds, real estate, social security, and pension.
However, another asset that you have to take a look at and consider that as an option is your primary residence.
Looking at the stats, on average, a retired individual between the age of 65 to 85 years would have maximum liquid financial assets of around $100,000.
Whereas the same individual at the age of 65 to 85 years accumulates maximum home equity of about $160,000. This home equity gives the retiree an additional option to plan their retirement income.
Ways To Tap Home Equity In Retirement
Most retired individuals have to look at some different alternatives to create adequate retirement income.
A lot of financial planners would suggest not counting your home equity for retirement income because you need a place to live.
That is generally good advice, but given that you have a lot of equity in your home, and when it is difficult to save, tapping into your equity could be beneficial.
There are three ways you can draw from your home equity after retirement.
1 - Downsize:
That is a kind of obvious option. You could sell your home and buy a cheaper house. For a lot of retirees, that is something that you might want to do anyway.
By doing so, you can reduce your mortgage and potentially end up with more cash in your pocket to invest and create more retirement income. One of the most significant expenses for a retired individual is health care.
But if you take a look at the latest studies, it is not health care; it is the cost of your home. If you are in your 60s, 70s, or 80s and still living in a comparatively big house, you might want to take a look at some different strategies.
On average, the cost of your home is usually up to 30% of your household income. You might want to tap into that real estate to make sure that you can provide the lifestyle that you want long term.
So downsizing might be a key to a lot of individuals. When you downsize, you will reduce not only your overall housing expenses but also free up equity to be used for other retirement costs proving good use of home equity for retirement.
2 - Reverse Mortgage:
For retired individuals who are 62 years and older reverse mortgage could be a potential opportunity.
A reverse mortgage would give you a fixed income making sure you have adequate income flowing in every month.
When you are looking at a reverse mortgage, you can access a chunk of the equity from your home as an income stream for life.
You also have an option to take a lumpsum amount primarily to pay off the original mortgage, or you can also opt for a line of credit which is very attractive.
After retirement, when you realize how little savings you have to maintain the standard of living and how difficult it might be to sustain, a reverse mortgage is one good option that you might want to consider.
3 - Emergency Fund:
You can always access your home equity as a means of emergency fund which means you don’t have to use those funds, It is something that you might want to use only in case of emergencies like long-time care or some health event.
A lot of time after retirement, you might think that you need a long term care state. Tapping into your home equity for retirement is another way to take care of your long term care insurance.
Using home equity for your unexpected medical expenses is also an option. Having that substantial equity is a safety net.
Conclusion
Using home equity for retirement might not be a case for everyone.
However, for individuals who have fewer options and are worried about their retirement income, this tool may be useful to manage and get through your retirement without any concerns.
