Ways to use your house for extra income
People over 65 average $150,000 in home equity, according to the Center for Retirement Research at Boston College.
That amount dwarfs the rest of their assets combined.
This generation of retirees is facing the decline of traditional pensions, while the 401(k)s that replace them are less generous and more uncertain.
So the case for employing one’s home as a source of retirement income has never been stronger. There are three major paths to do that, depending on what your priorities are and the details of your current situation.
Sell and downsize
This is the simplest way to go. The Center for Retirement Research notes that there are a lot of advantages to choosing a home now that will allow you to age safely and happily in place.
For example, you can move from a large empty nest to a single-story unit with modern, accessible updates like grab bars in the bathroom. Pick a townhouse in a development with a gym and swimming pool so you can exercise daily. Gravitate toward a walkable neighborhood. Or move closer to adult children and grandkids — maybe all of the above!
Housing costs are the single biggest item in most retirement budgets, hovering around 30 percent. So with a cheaper home, you will save money each month.
And aging homes have costly maintenance needs that grow over time. Moving, meanwhile, definitely doesn’t get easier as you get older.
The profit from your sale will be free from capital gains taxes up to $250,000 for a single homeowner and $500,000 for married couples who file jointly.
You can invest the proceeds in bonds, an annuity or an index fund and draw from the income, or you can use the cash to delay applying for Social Security.
Consider a reverse mortgage
For some people, leaving their longtime homes is just a nonstarter. Maybe you are already lucky enough to be near family or a “naturally occurring retirement community” full of old friends and neighbors.
Borrowers 62 and older who have home equity and need retirement income can apply for a home equity conversion mortgage. Essentially, this is a loan against the value of your home.
You can stay in the home, spend the money now when you need it, and nothing needs to be repaid until both you and your spouse move out or pass away.
In order for this to work, however, your home must be paid off or have a low remaining balance that will zero out with the proceeds from the loan. And you will still need to pay all property taxes, insurance and maintenance each month.
The good news is that because the income is a loan, it is tax free and doesn’t affect your Medicare premiums or taxes on Social Security.
Reverse mortgages have had a poor reputation in the past, but a Federal Housing Authority home equity conversion mortgage is federally insured and comes with more protections.
Ignore any solicitations you may get, and reach out to the National Council on Aging at 1-800-510-0301 for phone-based counseling. Or check the home equity conversion mortgage pages at Hud.gov.
Rent out a room
For those who need a more flexible, short-term solution than the two big steps above, becoming a landlord or landlady may be right for you.
Maybe you can take on a roommate who provides companionship and mutual support as well as help with the mortgage. [See “Share your home like the Golden Girls did,” July 2015 Beacon.] Or do a trade if you need household help.
Are you an entrepreneurial type? Have you already retired to your piece of paradise, or are you blessed to be in a great metropolis?
Then you may want to look into a platform like Airbnb, which allows you to take in guests for as little as one night.
Have you pursued one of the following paths to earn income from your home? Any tips? Let me know and I may use your response in a future column.
© 2017 Anya Kamenetz. Distributed by Tribune Content Agency, LLC.