Question for the forum brain trust because I have not come up with an answer on this one.

Current Scenario - We own our home and it is paid off with no liens. The wife and I are getting real close to retirement. Based on current numbers when we both retire, we believe will have “enough” between SS and my 401k (no pensions) to live a simple “stay within a budget that is smaller than it is now” life.

Let’s say that our current home value is about $420,000 (give or take $20k) which if we sold would allow our retirement living to improve significantly, even if paying a monthly reasonable ($1000-$1500 a month) house rent, BUT then we would not own a home and would be paying rent that I am sure would go up yearly for the rest of our lives.

Not that I want to sell this house, but we have talked about building one more time and reducing the square footage (down to 1500-1800 sq. ft home) but the problem with this is that the cost to build now days in our area runs between $180.00 to $230.00 a square foot depending on what you want which means selling and building a smaller home will not yield very much additional retirement savings.

Not wanting a reverse mortgage (at least on this house because we do want to downsize when the building market square foot costs come down a little more) is there anyway to leverage a paid for home to support one’s retirement?

they have reverse mortgages out there, if it works for someone is dependent on each persons situation.

The only advantage to selling and building is that you could build a new home and mortgage it at some lower pct, say 50% and keep cash out of the sale of the existing house.

Say you sell your home for a net $400K and the new build is $300K, then finance a mortgage for 30 years at $150K, you then have pulled cash out and have that monthly payment you said would work. Interest rate will fall again at some point and you can refinance.

Taxes and insurance are going up so a home in a lower tax area and lower value could help with that as well.

We're close to the same situation on how to pull cash out at some point and build a smaller home since we don't really need all the room anymore.

It's probably not viable right now due to interest rates and home prices, but if you can get the numbers to work right at some point in the future, you could in theory use a home equity loan on your current house to fund a large down payment to build/buy a smaller house, then rent out your current house at a monthly rate that will cover the insurance/taxes/upkeep/HE loan payment on your rented out current home, cover the mortgage/insurance/taxes on the new smaller home you're living in, and have a little left over to supplement your retirement funds.

It comes with some risks, and isn't going to make you rich, but if done correctly (under the right market conditions) it's a way to potentially leverage your current home's equity into some additional rental income to supplement retirement.


A similar route that could generate even more monthly income would be to sell your current house, use the money to buy a smaller duplex outright, then live in one side of the duplex while your rent out the other side. The monthly rental income would then go towards covering insurance/taxes/upkeep only, leaving a larger chunk leftover to supplement your retirement funds.


But either of those route requires the hassle of dealing with renters. So your best bet is likely to wait out the housing market, and be prepared to pounce on selling your current home and downsizing into a smaller one once the numbers makes sense, then invest the profit.

quote:

Originally posted by sigarmsp226:
Question for the forum brain trust because I have not come up with an answer on this one.

Current Scenario - We own our home and it is paid off with no liens. The wife and I are getting real close to retirement. Based on current numbers when we both retire, we believe will have “enough” between SS and my 401k (no pensions) to live a simple “stay within a budget that is smaller than it is now” life.

Let’s say that our current home value is about $420,000 (give or take $20k) which if we sold would allow our retirement living to improve significantly, even if paying a monthly reasonable ($1000-$1500 a month) house rent, BUT then we would not own a home and would be paying rent that I am sure would go up yearly for the rest of our lives.

Not that I want to sell this house, but we have talked about building one more time and reducing the square footage (down to 1500-1800 sq. ft home) but the problem with this is that the cost to build now days in our area runs between $180.00 to $230.00 a square foot depending on what you want which means selling and building a smaller home will not yield very much additional retirement savings.

Not wanting a reverse mortgage (at least on this house because we do want to downsize when the building market square foot costs come down a little more) is there anyway to leverage a paid for home to support one’s retirement?

Unless you have some very specific needs in a house I wouldn’t build a house from scratch. That typically costs you 10-15% more than buying an existing house. I think I would see how retirement goes and if you don’t have enough money I would look for a smaller house to downsize to. That will free up some money that you can then live on.

quote:

Originally posted by HRK:
The only advantage to selling and building is that you could build a new home and mortgage it at some lower pct, say 50% and keep cash out of the sale of the existing house.

Say you sell your home for a net $400K and the new build is $300K, then finance a mortgage for 30 years at $150K, you then have pulled cash out and have that monthly payment you said would work. Interest rate will fall again at some point and you can refinance.

Taxes and insurance are going up so a home in a lower tax area and lower value could help with that as well.

We're close to the same situation on how to pull cash out at some point and build a smaller home since we don't really need all the room anymore.

HRK: Good ideas... thinking similar.

I've noticed that people no longer want big houses. The smaller ones get bought up quick around here, the big ones not so fast. People are living in smaller family units.

Get a job!

Seriously though, there’s way too many variables to offer you any realistic advice. How old are you and your wife, how healthy are the both of you, is the area your home is in going to boom or bust in the future, what are you assets, what are your property taxes, etc.

I am seriously contemplating getting a 40'+ 5th wheel with many slide outs, putting it in a metal frame building on concrete or a manufactured home on some land but getting the land to put it on is gonna be interesting. Everywhere is getting more pricey. I would love to move to Tn. and sell my home to do it and place the rest of the funds in some sort of investment plan.

The first number you need is how much more money it would take to make your life more comfortable.

The next number you need is what is your monthly cash flow.

Since you are paying taxes and insurance now, figure about $600 a month extra out of cash flow for every 100K you want to borrow.

or a reverse mortgage is nothing more out of your monthly cash flow, but you are eating your equity. You can borrow around 80% of the appraised value of your home.

For most people, the fees make it not worthwild but for some people, it is a game changer

I am a real estate attorney in Florida. I can give you some general information about reverse mortgages. It might be a good fit for you. Since rates are high right now, they generally yield more cash to the borrower when rates are high. Also, you don't have to take the money, you can just let it grow at the rate charged plus half a point. This might give you the security you want without selling the home. You can also use a RM to purchase a new primary residence and that lets you pocket the cash from the sale of your home.
Let me know if you want to discuss this offline.

PS I DO NOT SELL THESE PRODUCTS but I have vast knowledge about them.

We have been retired almost 2 years now. I'm 62 and the wife is 60.

My general comments are that being debt free is paramount, and while you are healthy you should live in a situation that allows you to DO things. Whatever it is you both enjoy. Maybe you want a few acres, maybe you want a lock-and-leave condo so you can travel. Maybe you want a small place near the kids/grandkids plus a cabin near a favorite lake.

So, first I would identify the lifestyle you will want to enable for the first 10-15 years of retirement.

Second, I would discourage building new because of the aggravations.

Third, there may be a creative way to free up cash without a reverse mortgage. I know the rules have changed, but the idea of a reverse mortgage really bothers me. Compounding of interest works against you pretty fast.

Do you have adult children whom you could sell the house to and then rent it from them at a reasonable rent? Perhaps with a right-to-occupy even if you run out of $. I am a big fan of trusts, and this would be a situation where a family trust could be used. The trust would own the home, and your kids would be the beneficiaries of it. So the kids pay you for the home, the trust owns it, and per the trust they can never kick you out.

You get the cash now for the home and still get to live there.

Renting a home or apartment is not necessarily a bad move. Assuming your home is worth $400k today (after the costs of selling it), you can think of it as you have $400k cash to either buy that home outright or use it for other living arrangements.

Assuming you can get 5% interest on that money, which you can easily do with short term government bonds, the $400k would bring in $20k per year interest.

That $20k per year could be thought of what it is costing you to "rent" your current home. You are also paying property tax, utilities, and maintenance. So if those additions come to $4k per year, it is costing you the equivalent of $2k per month to be there. That's the cost of money you have in the house.

To back up a bit, we can assume you will bring in about $20k per year if you sell the home and invest the money in government bonds. That is about $1667 per month without touching the principal at all. Iow, you could rent for $1667 per month forever and still have the full $400k in your brokerage account.

The question is: do you need to get cash out of the house to finance your retirement? You said you have enough as it is.

Without doing a reverse mortgage, the next way to get the equity out of your house is to refinance / get an equity loan. But today's rates are going to be pretty high and that's a lot of interest expense relative to a lower interest rate environment.

As you now realize, assets that can readily generate income streams are the key in retirement.

If it's not your forever home (you plan to downsize in retirement) you might want to consider "locking in" your current home value now. I realize this would make your life more complicated in the short term.
I really believe we are in the end stage of a real estate bubble. Sell your house now at the still somewhat elevated prices. Transition into a rental for the next couple of years. All indications are that rental costs are set to be coming down.
When you retire in a couple of years you will be sitting on the home sale cash. Use it to buy your forever home at post crash prices.
I really think we will see a 30% price reduction in the next couple of years.
I also think the only other way to get your cash out of the current home is via a reverse mortgage as much as you might not want to do so.

My opinion- if your future finances are borderline as/is, I wouldn't leverage a paid off home to change that unless it was an emergency situation and you had zero other choices.
None of us really know the future, things like home values, inflation and various other factors.
However, the money you cash out, if you did that, will always decline due to inflation. Generally speaking, home values and rents go up. That can go through cycles as long as ten years (based on the last 100 years or so) but long term, that the truth.
I would stay far away from reverse mortgages and taking out lines of credit to finance lifestyle.
Any cash you get from a sale will be hard to invest to give even break even (and safe) returns after taxes, that even equal real inflation.
Meanwhile, the cost to rent or pay loans is always there and often going up. How to factor those numbers into your situation, who know.

quote:

Originally posted by Powers77:
I really believe we are in the end stage of a real estate bubble. Sell your house now at the still somewhat elevated prices. Transition into a rental for the next couple of years. All indications are that rental costs are set to be coming down.
When you retire in a couple of years you will be sitting on the home sale cash. Use it to buy your forever home at post crash prices.
I really think we will see a 30% price reduction in the next couple of years.

The wife and I have considered that approach for exactly the reasons you give. But decided it is not our preference.

OP's thoughts could be different and it could be a good option for him. Our realtor in fact proposed it to us, so yeah there is good reason to believe home values will drop significantly.

It took us a while into retirement to back away from the constant quest to find the profitable angle. Not to say money isn't important. I spend a fair amount of time with the finances! The point is we aren't looking at building wealth, we want to preserve it (not waste it), and get maximum joy from it.

Selling has costs, moving has costs, rent is a cost, then moving again has a cost. Moving is a real chore, too! If the net gain is, potentially, a few tens of thousands, and if that money won't make a significant long term improvement in one's life, it may not be worth the aggravation.

Real estate dips generally last a few years. So if one lives in the home for the next 10 to 15 years then the dip doesn't matter.

My biggest opposition to the strategy would be the human factor of what the person does with the money from the home they sold until they buy the next home in a year. If the money isn't locked up, many people would spend it or make risky investments and lose it.

Ultimately, in retirement a lot of choices come down to what makes for peaceful sleep at night. That and watching friends die young brings home the point of creating joy is more important than chasing dollars.

To everyone who has shared your ideas, recommendations, and thoughts I want to say THANK YOU to each of you. So much to consider and many ideas worth exploring..

Being 64 and Ms. Sig being 62, Fly-Sig’s posts and a couple of others posts have practically addressed or referenced every variable my wife and I think about and talk about almost daily. The points of selling, renting, moving once or twice, buying, building, etc. at our age is not something we look forward to doing, but are ready if it becomes required or proves to be a significant advantage, significantly being the key word in this statement.

Rather than disclosing more specifics, which I completely understand is needed to receive “deeper dive advice” I am going to take the advice provided in this thread to ask more specific questions. The good news is I am healthy, still working, and should have a decent monthly SS income number when that time comes to file and we have a decent 401k balance also (and we are 100% debt free).

Our concern is the future relates to home taxes and insurance as well as upkeep (current home is 20 years old and things are starting to wear out and break) and how much of our planned retirement income that will consume. As many have said, these are unknowns so like Fly-Sig I spend a lot of time looking at and worrying about (for me) what the future holds.

Thanks again to each and every one of you who took the time to provide your support. Mark

Pretty sure you will but take into consideration the operating costs ie taxes, insurance and power costs in your area.

IN CA, FL and many other states Insurance has become difficult to buy and with fewer participants, expensive. Our power costs are some of the highest in the country and there are no consumer provisions for government subsidy on alternative ie solar power.

Just saying you are in a lower cost state compared to many, finding a less expensive alternative may be difficult compared to moving from LA to Jackson MS.

Good luck let us know what your advisor comes up with, be interesting to hear.

HRK - I will Sir - and again that’s for your support.

Great folks here on this forum that help me in so many ways, even when there are times that someone tells me what I may not want to read or hear .