Strategies for Retiring on the House

Even with the recent drop in home prices, the real value of a single-family house in the U.S. has more than doubled in 10 years, according to the Standard & Poor’s Case-Shiller Index. In some markets, it has tripled.

As people approach retirement, many are contemplating what to do about homes that are worth a small fortune. If you have a customer in this situation, here are a few things to suggest that they consider.

Downsizing early can pay off. Retirees can unlock a lot of extra retirement money by selling earlier rather than later, says Kristopher Johnson, a planner at Timothy Financial Counsel in Wheaton, Ill. The cash raised can provide money to live on early in retirement, while leaving other accounts — like individual retirement accounts — untouched. That gives a nest egg more time to grow untouched, Johnson says. And more flexibility in dodging taxes bills.

They have to live somewhere. People who want to move should map out where they want to go ... before selling their current home. It makes it easier for people to downsize and shed their belongings if they are looking forward to moving someplace that they think they are going to love, says Avani Ramnani of New Jersey-based Athena Wealth Advisors.

Run the numbers first. A potential retiree should figure out how much money is available without considering unlocking cash from the family home, says Marshall Groom, a planner in Richmond, Va. If the situation looks good enough, the house is just the icing on the cake, which can free a retiree to consider many options.

Source: Business Week, Ben Steverman (11/5/07)