If you fall short of creating a nest egg, you might be astonished at how your house might aid you. Most people frequently hear how crucial it is to save a sizeable nest egg for retirement. Social Security payments would replace around 40% of your pre-retirement salary if you were a median worker. Yet many seniors require far more than that amount to live comfortably.
Additionally, we must recognize the possibility of Social Security cuts within the next decade. So, many future retirees may become even more dependent on their savings. Sadly, a significant number of senior Americans don’t save enough or don’t save at all. Transamerica forecasts that by the end of 2021, workers’ median retirement savings will be $67,000. That was before the steady market declined in 2022, which has reduced most retirement accounts even further.
If you are approaching retirement with insufficient money, it is understandable that you may feel anxious. There is a bright spot if you are a homeowner. Your house might bail you out.
Leveraging your home
Almost 80% of senior citizens are homeowners, according to Vanguard. Additionally, many elderly approach retirement, having paid off their houses.
In this case, you can leverage your house to compensate for the lack of savings. You may still utilize your property to your financial advantage even if it is not entirely paid for. For example, you can sell your home, downsize to a smaller dwelling, and then utilize the money as a second nest egg. If you possess a large property valued at $400 000 (which has more square footage than you require), you can sell it. Even after transfer taxes and agency costs, you would have more than $200,000 in cash if you replaced it with a $150,000 townhouse or condominium. This amount may be invested and withdrawn as required.
Retirement downsizing is not always possible or desirable. However, you may rent out a section of a bigger property, such as a finished basement, to generate income. And if that doesn’t work for you because you don’t want a full-time renter living under your roof, you can always rent out parking spaces in your driveway or storage space in your garage.
Use your home to your benefit.
Setting aside money for retirement savings is challenging when life’s various expenditures get in the way. Still, if you own your own home, you may have more ways to make money in retirement than you realize.
A reverse mortgage is one option you may wish to avoid. These mortgages are often promoted to senior homeowners to boost their cash flow. But, a reverse mortgage is still a debt that must be repaid, and you may confront various disadvantages if you opt to obtain one. You may want to explore reducing your living space or monetizing your property by renting it out instead of selling it.