When you’re nearing retirement age, it is easy to get nervous about having the resources necessary to live comfortably for the rest of your life. Those individuals who invested wisely can sit back and take heart knowing that they are financially okay. But then there are those who thought they were investing properly, only to find that the market was not in their favor at this time in history.
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Statistics show that as many as 50% of those close to retirement age have as much as 50% of their asset accumulation tied up in their home and any equity it has accrued. The problem is that home equity isn’t something you can calculate when assessing your long-term financial wealth.
If you are facing a situation where the wealth from your biggest investment is sitting idle, there are ways to make your homework for you to get you where you want to be financial.
Downsizing
Many people purchase their home when they are at the peak of life. Things that determine their type of home are the number of people that will live there, the school district that their children will attend, and other upgrades that seem important in your 30s and 40s. If your children have all moved on and it is just you or you and your spouse, you might want to consider downsizing and putting the nest egg built into your house into an account to allow it to grow into some sizable wealth.
From the standpoint of a Winnipeg financial advisor, not only does it make sense to downsize if your house now has a fraction of the people that lived there in the past, but there are also all sorts of tax breaks you can take advantage of when you downsize. If you sell the house that is your primary residence, the first $250k isn’t taxable if you are single; if you are married, then the first $500k is tax-free.
Downsizing not only means less money needed to run your household and less to clean, but it can also help you and your spouse learn to live within the means that you will have available once you have retired. Cutting your monthly budget ahead of time, instead of when you are forced to, will make the retirement transition go much more smoothly and not be such a hardship.
Try a reverse mortgage
If you are over 62, then you are eligible to put your loan in reverse or take out a reverse mortgage. Depending on the balance of your mortgage, you can borrow from the equity built in your home and not have to worry about paying any of the money borrowed back until you sell the house. If you don’t sell it yourself, then the estate pays the amount left after you die. The amount of equity that you have built will determine how much you can borrow.
There will be fees that you have to pay upfront, like a mortgage insurance premium that is based on the value of your home versus the amount owed. You will also have to pay closing costs and a loan origination fee, but the advantage is that there are no annual fees.
The interest that you accrue monthly is added to the total balance of the loan you have. But you only pay on the amount of money that you borrowed, and the line of credit will remain open as long as you want it. If a reverse mortgage is not something you are comfortable with, then you can also consider refinancing your home and reducing your payments to cut your monthly costs to make your retirement budget more comfortable.
Take on boarders
If you choose to stay put, then there isn’t any reason that you can’t rent out a room. If you have a garage apartment, then consider renting it out for the monthly income. A 2016 study conducted by Airbnb showed that seniors are the fastest-growing population to rent out rooms or empty spaces for extra income. It’s a great boost to your budget;
if you are careful and find the right person to fill the space, it can be a winning situation for everyone. Just make sure that you are aware of any taxes you might be subject to or fees if you rent out space; it’s a good idea to consult an attorney before taking the renter’s plunge.
If you are concerned that most of the wealth you have is tied to a house that you are living in, there are options to make that equity work for you. Depending on where you are financially, what you owe on the house, and how much equity or additional space you have, there are many viable options to make your house work for you.
Nice information. Many people get serious about retirement planning only when they reach their 50s.
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