3 top ways to use your home equity in retirement

Home equity can be used in order to enhance your retirement planning income. Here are the main specific ways that will help you enter retirement with substantial income that complements your other retirement savings accounts.

Downsize is regarded as a traditional method to tap a current home equity in retirement. The only thing that you will have to do is to look for a less expensive dwelling and move to it. The whole strategy is straight forward. For instance, if you are likely to sell your house for $300,000 and replace it with a new house costing $200,000, you will freed up $100,000. This simple strategy will make sense even when you consider all the maintenance costs and the severe headaches brought by a larger family-home that were all done away with thanks to the new and less expensive house you bought. However, you shouldn't underestimate your emotional attachment to your first home because this attachment is likely to be very strong and it can prevent you from moving to a less expensive dwelling.

Reverse mortgage is another way you can use in order to enhance your retirement savings. You can still tap your home equity as a real source of future retirement income. The reverse mortgage concept allows every retiree over 63 to tap into his or her home's value without having to make any repayments during his or her whole lifetime. A reverse mortgage will require no monthly payment. The whole payment stream will be reversed.

Instead of having to make monthly payments to your lender, the lender will be the one who makes these payments to you and this will happen for the whole remainder of your life. This will happen if you continue to dwell in your house. The closing costs and the origination fees for a reverse mortgage are quite high but this way of supplementing your retirement income can be structured well enough in order to provide regular and significant income for the rest of your retirement.

Purchasing additional service years – this method can be used if the company you work for allows you to purchase some years of service credit. Sometimes, you can do this at bargain prices and qualify to retire earlier. The cost of buying such service years can vary from one employer to another. Most of the retirement plans that include purchasing additional service years will require just a single fixed dollar payment for every single service year that is purchased regardless the retiree's age. However, the vast majority of such plans will have the total costs computed based upon several factors that include income, age and other variables.

Keep in mind that it is worthwhile for you to try and learn everything you can about the wide range of options you have in order to supplement your retirement income. For instance, in the case of purchasing additional service years, even if the front costs are likely to be steep, you can use your home equity in order to have these service years purchased. This is to be regarded as a very sound investment for your future as a retiree. Try to bear in mind that you will be looking at the future purchase of an annuity. In exchange for the up front payment, you will be provided with a steady stream of future retirement payments. But, as with every single major financial decision, you will have to search for qualified financial advice.       

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