That’s the subject of the latest headline from Yahoo Finance’s personal finance How-To section and it’s certainly one worth reading if you’ve been considering using the home equity you’ve built up in your home as a way to supplement your retirement income. They profile three basic strategies for tapping into home equity: downsizing into a smaller home, relocating to an area with a lower cost of living, or creating an income stream with a reverse mortgage.
They recommend this if you can find a location that is both cheaper and won’t negatively impact your lifestyle. If you’re used to living in Manhattan, living on a farm in rural Pennsylvania will likely cramp your style and significantly impact the way you live your life. That’s not to say rural life is bad, it’s just bad for a socialite used to painting the town red. One pitfall they warn is that you need to fully research how much life really costs in the area you’re moving to, sometimes there are hidden costs and you must find them before deciding.
Downsizing and relocating are very similar in that you’re getting out of your current house and moving into another one (or apartment, condo, etc.) that costs less. The only thing to add with downsizing (which also applies to relocating) is that the first $250k ($500k if you’re married) of profit is tax free if you’ve lived in the house for the last two years.
Want to stay put but draw out some money? A reverse mortgage may be an option for you, it allows you to receive payouts tax free and can come as a lump sum, a line of credit, or even an annuity. Reverse mortgages are a little tricky and have many rules so review the article and seek professional help to see if it’s right for you.