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Can your home secure your retirement? Maybe not all of it, but it is possible that it can cover a lot more than you think. If you, like many Americans, live in a large family-style home, and you wish to downsize at retirement, your home may well be the asset that secures your retirement.
If you and your spouse file a joint return, you may qualify for up to $500,000 as an exclusion on the gain from the sale of your principle residence. Depending on the value of your home when you retire, you may be able to sell a current property, purchase outright a smaller home and invest the difference without incurring a tax liability. That means simply that you may be able to achieve up to a $500,000 tax free addition to your retirement nest egg. You can get more specifics from IRS Publication 523.
Depending on your anticipated lifespan, this means that your current home could provide the following additional annual cash flow for the entire term of your retirement. This would be in addition to any IRAs, 401Ks, Retirement plans, Social Security, or other investments. Here's a list of additional annual earnings assuming that you never draw down the corpus (the $500,000) and that you leave it, plus your smaller home, to your heirs at your passing. Here's the possible annual additional cash flow.
At 5% earnings: $ 25,000.00
At 6% earnings: $ 30,000.00
At 7% earnings: $ 35,000.00
At 8% earnings: $ 40,000.00
At 9% earnings: $ 45,000.00
At 10% earnings: $ 50,000.00
There are many other options regarding the use of the equity in your home at retirement, but even in this simple and direct approach you can see the incredible value of owning a home when you retire.
Many people do not consider their home a retirement asset, when in fact it can be a huge benefit. By downsizing housing at retirement you not only free up available capital, but you reduce overhead via smaller utility payments and lower maintenance. In addition, you will make a commensurate reduction in risk and stress. You'll have less hassle, less cost, less cleaning and more freedom. Those are all great reasons to downsize when the time comes. Based on this information we hope that you have a firm goal to own your home, free of any debt, when you retire. It will serve you well during retirement.
Roger Beattie is a long time real estate broker, investor, owner and operator. He believes in a practical, functional approach to real estate investing without any of the hype or obscene promises. You can learn more about his approach to real estate investment education at http://www.middleclassmillionaires.com
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