Leveraging your house to provide support in retirement may seem a bit strange. Don't think of leverage in the traditional sense of the word. Leverage means different things in different circumstances. Keep that in mind as you read.
With many seniors struggling to outlive their retirement, it can be stressful as you see your savings slowly dwindling. Even if you planned and have budgeted diligently, you may find yourself worrying that your retirement will not last and that you’re going to need extra cash flow in the near future.
There is no one size fits all approach to securing your financial well-being during retirement. However, if you own your house, you can leverage your home to support you in retirement in several different ways. You’ve probably even already heard about some of them but I can help provide some clarity.
Sell Your Home & Downsize
You have probably found that as you spend more time in your house, you don’t need all the space you have or are facing new challenges because of the layout. While there are ways to fix these issues, if you’re already stressed about your financial situation because of late or insufficient retirement planning, renovating is probably not a wise choice.
Downsizing may be the answer for you. By selling your house, you can take the profit and invest it in a new home, one that is ideally smaller and less expensive. The rest can be used to bolster your savings. You may also consider renting a home. While you’ll have to pay monthly rent, you’ll be able to pocket the entirety of the profits from the sale of your home.
To make the most of these options, you should make sure you are choosing a place to live that significantly lowers your housing cost.
If you can’t find it in yourself to part with your family home, there are other ways to leverage its equity that don’t require moving.
Take out a Reverse Mortgage
A reverse mortgage may be a term you’ve heard before. While it may seem intimidating, it is actually a way to increase your financial freedom in your retirement years. This type of loan is designed to provide seniors with a tax-free cash influx by providing a loan based on the equity your property has accumulated. Your house will be used as collateral on your loan which works in your favor. This leads to a life free of mortgage payments, increased cash flow, and peace of mind. Best of all, you will not have to pay the loan back until you sell, use another property as your main residence, or pass away.
A reverse mortgage calculator can help you determine if the financial gain would be worthwhile for you and your spouse. Often, people find that they will have enough to pay off their mortgage and other debt. In some cases, you may even find that you can now afford the luxury vacation you have been putting off your retirement.
Rent out Part of Your Home
If you have made cuts to your budget and have determined that you can stay in your home if you’re able to decrease your mortgage expenses, you might consider renting to someone. Depending on where you live, there may be a lot of opportunities to host both long-term and short-term renters.
If you live in a popular tourist destination, there’s a good chance you could only have a renter part of the year. You could use your home as a vacation rental and stay with your family for a few days of the month. It is much easier than it sounds because there are a plethora of sites that help you manage your vacation home listing and book renters.
If you would rather have the peace of mind of knowing the person well and having a more stable rental situation, you could look for other retirees. There are even special services devoted to helping seniors find their ideal housemate. Finding a renter who fits better with your lifestyle and is likely to renew their lease can help you better plan your finances and maintain a livable budget.
Whichever rental option you pursue, make sure you do your research and plan accordingly so you can handle any issues that may arise.
It can be easy to become convinced that financial hardship is inevitable for retirees today. While it might not be enough to rely on your current savings and Social Security benefits anymore, you do have options to preserve your financial wellness.
With some dedication on your part and help from professionals, you can utilize your greatest asset to bolster your budget and relieve your stress. Finding the right way to leverage your home’s equity will allow you to enjoy the rest of your retirement.