How To Make Homeownership Work for Your Retirement Plan

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Your home is probably one of the most significant assets you have, and it can play a huge role in your retirement planning. Your home can be a valuable resource in retirement, but it can also be a burden. 

“First and foremost, do you actually want to own a home in retirement?” said Chris Urban, founder of Discovery Wealth Planning. “Do you want to pay the bills and do all of the work that comes along with homeownership?”

Whether you already own a home or are considering purchasing one, there are strategies you can use to take advantage of it to support your lifestyle and finances during your retirement.

Aging in Place

“Some people want to age in place and live forever in the home that, perhaps, they have lived in for years,” said Urban. “If you have more than enough money to meet all of your goals in retirement and you just want to age in place then I would certainly lean more towards just remaining in the home where you are most comfortable.”

For many retirees, staying in their familiar homes and aging in place is very appealing. The emotional attachment to one’s home, combined with the familiarity of the neighborhood and established social connections, can contribute significantly to overall well-being and quality of life during retirement years.

“For those who would like to age in place but have financial circumstances that might make that difficult, you can consider working with a knowledgeable, qualified professional to discuss options such as a reverse mortgage, home equity lines of credit, home equity loans, etc.,” said Urban.

Passing Down Your Home

Your home might represent more than just a physical structure. It probably holds sentimental value. It’s also an inheritance to pass down to keep in the family and pass on to your children or grandchildren. 

“Holding onto the home to pass it down to the next generation preserves a valuable asset for heirs,” said Michael Hills, a financial advisor at Apex Wealth.

Consider establishing a trust or incorporating your home into your overall estate plan. An estate planning attorney can help you create a plan for transferring the ownership. You’ll also want to prioritize regular maintenance and upkeep so that you pass down your home in good condition. You don’t want the property to fall into disrepair, which will only saddle your heirs with a financial burden.

Reverse Mortgages

A reverse mortgage can help you get value from your home’s equity without you having to sell or move. With a reverse mortgage, you can receive a lump sum, monthly payments, or a line of credit based on the value of your home. The loan is repaid when you sell the property, move out, or pass away.

Reverse mortgages do come with fees and interest charges that can decrease the amount of equity you have. Be certain that you understand the implications, such as the impact on your heirs’ inheritance.

Home Equity Lines of Credit

Another option is to take out a home equity loan or line of credit. This essentially means you’re borrowing against the value of your home. These loans are often used for things like renovations, medical expenses, or just supplementing your retirement income.

This kind of loan comes with additional monthly payments, however. And if you fail to make the required payments, you can be foreclosed on. Be certain that you’ll be able to repay the loan before you take one out.

Downsizing

Your housing needs might change when you retire. Maybe you’re living in the home where you raised your family, but your children have all moved out. It might be a smart move to move to a smaller and more affordable home. 

You may choose to downsize if you “no longer need as much space and/or do not want the burden of owning a home,” said Urban. “Or, perhaps you want to travel and/or move to a different part of the country or internationally even. What are the costs of owning and renting in those places? Do you simply value having liquidity (aka cash available) to keep your options open?”

The proceeds from selling your current home could be used to supplement your retirement income. But before you do, remember that there are closing costs, taxes, and fees that go with selling. Do you need to make any renovations before selling? Also, think about all the expenses that go into moving to a new home.

Buying a Home for Retirement

If you don’t currently own a home, purchasing one for retirement might be a good option, depending on your circumstances.

Owning a home during retirement can offer several advantages, such as stability, potential appreciation, and the ability to build equity. It can also provide a sense of security and a place to call your own, which can be valuable during this stage of life.

“For retirees who don’t own a home, the decision to buy or rent depends on their financial situation and lifestyle preferences,” said Hills. “Buying a home can offer stability and potential investment benefits while renting provides flexibility and freedom from maintenance responsibilities. In each situation, retirees should carefully consider their goals, financial resources, and long-term needs to determine the best course of action.”

Homeownership also comes with ongoing expenses, such as a mortgage, property taxes, insurance, maintenance, and repairs. All of these costs will have to come out of your retirement budget, so be sure that you can afford it.

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