When it comes to retirement, we plan and plan and still have questions. One of the top questions for homeowners when it comes to retirement is what should we do about the equity in our home? Therefore, I thought it important to cover that in my current blog since there's not a lot of information about it.
The equity that you have in your home represents a large part of your wealth. For married couples, your non-financial assets represent about 70% of your combined assets.
There are many financial planning programs available. However, many of them lack the ability to figure out what role housing wealth should play in your retirement. When it comes to middle class Americans, housing wealth should play an extremely important part in financing their retirement. But, it doesn't seem to be a primary consideration when they begin planning. Thus, there is a void of housing wealth in financial planning programs.
When it comes to homeowners who have 70% of their wealth tied up in their equity, there are a number of options for them to use that money for their retirement needs.
Here is a list of some of the options you have to unlock the equity in your home:
* Sell and downsize to a smaller home. This frees up funds for to invest or for an annuity purchase.
* Pay off the mortgage, if possible, to reduce overall expenses.
* Secure a home equity loan or secondary mortgage on the home.
* Sell your home. Invest the proceeds and then rent.
* Rent out extra rooms.
* Get a reverse mortgage.
* Keep the house mortgage free and let its value serve as an emergency fund if needed.
* Rent out your primary residence and live elsewhere at a lower cost.
Not every one of these options will be viable for one's retirement plan, but they are presented to help retirees use the equity in their home when it's time for retirement. In the meantime, researchers are working on new financial planning models that will include a way for homeowners to incorporate housing wealth in their retirement plan.
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Liz, Let me be the first to comment on this very nice, informative blog. You've given older clients, (most of mine fit) some good tips. Thanks.
Liz - As we shuffle through this thing called life, I don't think many of us realize that equity is such a wonderful part of our retirement portfolio. I know folks, who worked all their lives, paid off their mortgage, and a couple years back put on a reverse mortgage. The quality of their retirement now, compared to what it would have been is remarkable. Great post!
I have to imagine that everyone's situation is different...
I can see a lot of pros and cons...
your friend in Charlottesville Virginia!
Hi Liz...You make some great points here, as many financial planners I'm sure do not cover personal Residences, Here in Canada we're talking about Tax Free Money when we sell our principle residence.
Great Post for Consumers.
Your title says so much, "Using your home's equity for retirement."
If we ever get back to the point where people actually buy a home to live in, raise a family in, retire in, and die in, then and only then will we get back to a truly stable real estate market and economy.