Use Your Home To Help With Retirement
A new book sheds light on the use of real estate as a way to help fund seniors’ retirement, according to today’s Sacramento Bee. For years, investors have looked at retirement funding as a three-legged stool.
- Pension(s)
- Social Security
- Whatever else you can save
But the traditional trio may no longer be enough for the increasing number of baby boomers in the U.S., thanks to uncertainties with corporate pensions and retirement funds. Investors need to bolster their savings plans with a fourth leg — the family home. This is the theme of Jim Keene and Gillette Edmunds in their work, “Retire on the House: Using Real Estate to Secure Your Retirement.”
“Millions of retirees are sitting on substantial amounts of home equity in their properties that they can use to help fund their retirement,” Keene said. “In fact, many new retirees have four times more money in their home equity as they do in their stocks.”
Keene is a certified financial planner based in Walnut Creek, Calif. With 25 years in the industry, he’s seen it all and believes there are a number of financial options that homeowners can use to augment their retirement funds. Among those options reverse mortgages, home equity lines of credit, moving to cheaper housing markets and implementing innovative methods of selling a home to family members.
Reverse mortgages, which are essentially loans that enable you to withdraw home equity in the form of a lump sum or credit line, have soared in popularity in recent years. They do not require selling the home or giving up the title, and do not have to be repaid until the home is sold or passed to an heir upon the owner’s death.
“In order to get a reverse mortgage, a number of requirements must be met, including the fact that the borrower must be at least 62 years old and that the borrowers must go through a mandatory loan counseling session,” said Keene, who cautions borrowers to understand the full extent of their cost.
Although reverse mortgages are not nearly as competitive as they should be, Keene expects that will change rapidly in the coming years. A simple home equity line of credit could be a viable and attractive alternative. It’s easier to understand and handle for many.
“If you choose this course of action, it allows you to draw on funds only when needed, giving you maximum flexibility. At the same time there are no loan origination fees and you can make interest-only payments,” he said.
There’s also the option of leaving where you live and relocating to a place where you get more house for the money. Many people in the San Francisco Bay Area have moved to places like Sacramento, Reno and Las Vegas for this reason, and locally, many people priced out of the South Florida housing market are heading to the northern part of the state… and beyond.
Another option growing in popularity is what Keene calls an “interfamily sale and leaseback.”
Under such arrangements, family members purchase their parents’ home and pay the parents either a lump sum or installment payments, which can be used for future expenses, such as health care. It also eliminates real estate commissions and can have helpful tax benefits. Such arrangements can be very valuable in cases where the parents want to stay in their house while the next generation wants to keep the home in the family.
In addition to keeping the home in the family, the sale-leaseback maximizes the equity available for use by the retired parents. There is certainly a lot to think about for Florida real estate owners in the coming years, especially the state’s millions of retirees. If you’ve got questions about maximizing your capital (specifically your Florida home equity), it might benefit you to check this book out.
