For seniors across America, considering how to fund retirement if existing assets are insufficient can be an exercise in creative thinking resulting in expanding the canvas of thinking to encompass a broader range of potential options. For many seniors who are also homeowners, thinking of the home as a potential source of retirement funding is not a natural step to take.
This is according to financial writer Selena Maranjian, in an effort to take stock of several different potential sources of retirement funding that seniors may not realize could be an option for them to try and make ends meet.
“The typical retirement income plan used to be referred to as a ‘three-legged stool,’ with Social Security, a pension, and personal savings as the legs,” Maranjian writes. “It’s a rather wobbly stool these days, though, as few people have pensions, most Americans have far too little in retirement savings, and Social Security is insufficient to fully support most folks.”
Among a series of seven potential sources of retirement funding, one that some senior homeowners may find surprising is the largest asset they likely have access to: their home. An asset of that value has a widening number of options that are becoming available which are designed to tap the equity that has been built up in the home, and one such option is a reverse mortgage, Maranjian details.
“Your home is a possible source of retirement income if you get a reverse mortgage,” she explains. “That’s essentially a loan from a financial company with your home as the collateral. You get a lump sum from the company or monthly payments, and you don’t have to pay the loan back until you’re no longer living in the home. Learn more about reverse mortgages before rushing into one, as they are not good for everyone — but they do serve some people well.”
Another way that the home can be used to finance retirement is through down-sizing or “right-sizing” into another home that’s more in-line with a senior’s current and future lifestyle, she says.
“Another source of retirement assets can come from your home — if you downsize into a less costly one,” Maranjian explains. “For example, you might sell your home and buy a smaller, less costly one in the same general area, or you might move to a region with a significantly lower cost of living. Either way, you can set yourself up to pay a lot less in mortgage payments, insurance, taxes, maintenance, and so on.”
Other potentially unexpected sources of retirement funding can include a health savings account (HSA) through an employer; a part-time job for those still able to work; a fixed annuity; dividend-paying stocks; or borrowing against a life insurance policy.