You love your home, you raised your kids there and have so many wonderful memories and close friends nearby. But, you many find that your housing costs seem to rise every year. Twenty years ago most retirees went into retirement with their homes completely paid off. Today is quite a different picture. The Consumer Financial Protection Bureau’s Office for Older Americans says the percentage of homeowners 65 and older still making a mortgage payment has jumped from 22% in 2001 to 30% in 2013. Even more concerning is the fact that those homeowners in this age bracket that are seriously delinquent on their mortgages is 5 times higher in 2011 than in 2007. Older homeowners are much more vulnerable to financial stress being that it can be very difficult to go out and get a job to cover an increase in expenses. The following are some suggestions that those in retirement or preparing for retirement can do to reduce their housing costs in retirement.
Once you retire, you no longer need to be close to an expensive city so you can commute to work. You are free to live anywhere you would like. You might want to live near the beach or next to a great golf course. US News & World report has a list of the best places to retire for under $40,000/year here.
When you were raising your kids and/or your dogs, you needed the large house with multiple rooms and the huge yard. In retirement this can be quite costly to maintain and pay the taxes on a larger home and yard. It might also be a great time to change from a 2 story home to a single story home; as it can be more taxing to go up stairs as you get older. An added benefit to downsizing is that while lowering your monthly costs, you can also invest the money you have taken out and make it work for you. For example, If you had a mortgage of $150,000 and are going from a $500,000 home to a $300,000 home would get you perhaps $170,000 (after realtor fees and costs) and have a principle and interest payment of around $760/month on a $150,000 mortgage, or you could downsize and purchase your home for cash leaving you $23,000 to invest or save with no mortgage payments. A third option, if you were to do this same scenario but purchase your home with a reverse mortgage for purchase (assuming you are 70 years old) you would have over $184,000 to invest or save towards your retirement and No Mortgage payments for life. You can run different scenarios on our reverse mortgage for purchase calculator here.
BECOME A RENTER
This can be an enticing option because you get a nice cash infusion on selling your home. Upon doing this option, you would be out of the housing market. I would ask you to think how much you paid for a house in 1975, how much is that same home worth today? You would be missing out on future equity increases and subject to rental price increases as well. Once your initial cash infusion is going, you would have no more equity to tap into for extra help.
Couples or singles with at least one person at age 62 or older can access their home equity fairly easy by obtaining a reverse mortgage. Lets look at the same scenario from earlier. If you were to have a home worth $500,000 with a $150,000 mortgage and the youngest borrower were age 70 years old a reverse mortgage would eliminate all of your monthly mortgage payments (around $760/month), and allow you to get over $117,600 Tax Free (consult with your tax adviser for details). Using this option gives you peace of mind to know that you still own the home, and pass the remaining equity on to your heirs. It also gives you tremendous financial security due to the fact that you can never lose your home due to non-payment, because you would no longer have to make mortgage payments.
GET A ROOMMATE
Many retirees end up living alone, especially after a spouse passes away. Many have found that getting a roommate of around the same age can be a great experience and can give you some helpful cash infusions with rental payments each month. Or you can rent out a single room on a part time basis; check out www.airbnb.com or other similar sites.
Whatever you decide to do, it would be wise to evaluate your options sooner, rather than later, before you get behind on your bills or rack up high interest credit card debt. You may want to consider talking with a financial adviser or professional for their advice on your particular scenario. You have worked a lifetime to get where you are and a professional will help set you up for a happy retirement.