There are many ways that real estate can provide income or liquidity in retirement. For tens of millions of Americans, looming retirement is a frightening proposition due to the fact that up to half of all Baby Boomers don’t have enough saved to comfortably retire with their desired lifestyle. But there are a few ways that tapping into one’s home equity can provide much-needed cash for their golden years.
One of the chief ways in which retirees are tapping into the home equity in retirement is also the simplest and most sensible: downsizing. The truth is that the vast majority of Americans reaching retirement age do not need to maintain a large family home. Because real estate values have done so well over the last decades, many Americans have discovered that they can raise huge amounts of capital by simply moving to a smaller but still very nice home. Great options for downsizing include condominium complexes and even rentals. And while home prices have exploded over the last ten years in many locations, throughout much of the country, high-end and even luxury apartments can still be rented in the $1,000-$2,000-per-month price range. Downsizing can mean killing multiple birds with one stone; you get rid of yard work, drastically reduce upkeep, sell furniture and end up with a pile of cash for retirement.
Although reverse mortgages have gotten a bad rap lately, they should not be scoffed at, especially for those who are facing serious cash shortfalls for their retirement. Reverse mortgages have a number of major advantages. First, the only asset to which the reverse mortgage company can lay claim is the home itself. The mortgagee can never be held liable for any additional amount than what can be recovered from the sale of the home, nor can their heirs or estate be held liable.
The second advantage is that reverse mortgages can provide huge amounts of cash while still allowing the homeowner to retain a large amount of equity. Because of soaring home prices, now might be one of the best times in history to take out a reverse mortgage for millions of people who don’t have the cash on hand to retire. Reverse mortgages can be structured as lump-sum payments or as annuities. For homeowners with significant equity, this can make the difference between retiring in great comfort and barely squeezing by while having to work menial jobs. And with reverse mortgages, you get to keep your home.