How to Use Your Home Equity to Boost Retirement Income

How to Use Your Home Equity to Boost Retirement Income

If you’ve lived in your home for many years, or you live in an area that’s experienced a surge in home values then you most likely have a substantial amount of equity built up in your home. Home equity is good to have no matter how you use it. And it definitely beats the alternative: that is being underwater on your mortgage. In any case, having home equity is a good place to be. You can use that equity in numerous ways, including for retirement. In fact, if you’re behind at all in your retirement savings, your home equity could help you catch up.

Tax-Free Gains
For starters, you can cash in on the equity in your home and actually get the profit tax-free. Here’s how it works. Under IRS Tax Topic 701, you can exclude up to $500,000 in gains from the sale of your home from your income taxes. All it requires is that you own the home and you’ve lived there for at least two out of the last five years. That’s a nice tax-free gain.

Turning Home EquityInto Income for Retirement

So how do you turn that home equity into retirement income? There are several ways to do it. Here’s how.

1. Downsize when you retire and invest the gains – one of the most obvious ways is to sell your home when you retire and then use the equity to invest in other things. You can purchase a smaller home and likely pay less in taxes and expenses. Then use the rest of the money to invest in the stock market.

2. Sell your home and live somewhere inexpensive – you could also sell your home and then move somewhere where the cost of living is cheaper. Choose a low-tax state and also consider locations where things are generally cheaper. If your monthly expenses are low you might be able to live off the equity of your home sale.

3. Sell your home and move out of the country – of course, you could go really inexpensive and move somewhere out of the country, where the cost of living is even cheaper. There are drawbacks to this, especially if you have family, but it is another option.

4. Move in with your kids – your kids might not like the idea, but if they’re open to the idea, you could sell your home and move in with them. They might enjoy having you there to help with the grandkids, and you get to see those grandkids daily.

5. Stay where you are and do a reverse mortgage – lastly, you could try a reverse mortgage. This allows you to use your home equity, either as a line of creditor lump sum, while you maintain ownership of your home. You could then use that money to help supplement the rest of your retirement income.

There’s Still Time to Save
If you’re behind in the game when it comes to retirement savings and you own a home, the equity you have could be a game changer. You can claim up to $500,000 ($250,000 for single filer) as tax-free income and it could be enough to last you through the golden years.

We hope you found this article about “How to Use Your Home Equity to Boost Retirement Income” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio

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