“How much equity you have and whether your mortgage is paid off, as well as the strength of the housing market in your area, are all things worth considering as you figure out how your home can help you live the life you’ve always wanted in retirement,” Greenberg adds. Here’s how to factor your home’s value into your planning.
READY FOR A CHANGE
The financial benefits of relocating: Selling your home may be the most direct way to unlock the equity you’ve built in your house. It can also free you up to seek a new location with lower taxes and living costs. Downsizing your house could carry additional upsides, such as reduced maintenance costs and lower utility bills, both of which could help your income go further.
“It’s important to remember, though, that housing prices can dip, as we saw from 2007-2011 around the Great Recession,” says Alex Lin, senior U.S. economist at BofA Global Research. “If you’re nearing retirement and plan to move in the next year or two, it’s a good idea to keep an eye on home sales in your area and maybe even hire someone to assess the likely value of yours.”
When you do sell your home, “if you feel you need some extra income in retirement, any profit could be invested to provide the potential for growth,” says Greenberg. While homes, like other assets, are subject to capital gains taxes when their cost has appreciated at the time of their sale, those taxes generally don’t apply to the first $250,000 of capital gains ($500,000 for a married couple) on your primary residence if you’ve lived in it for two of the past five years. Consult your tax advisor on how this might apply to your situation.