My grandparents retired when their youngest child turned 18. They promptly sold their house, bought a trailer in Florida, and lived there seven months of the year. They had a 5th wheel trailer that they lived in during the five months when they weren’t in Florida.
For them, the decision to sell their home was an easy one, and it helped bring them financial stability in retirement.
Since their house was paid off, after they bought their trailers, the rest of the money from the sale of their home when straight into retirement investments.
Their retirement investments outlasted them; they passed away 25 years after they retired and sold their home. They even still had a small inheritance to give each of their nine children.
As most people reach retirement, however, the decision to sell the family home is not so easy. People are emotionally attached to their homes and struggle with the idea of selling them. “A full 83% would prefer to age in place” (Forbes). Yet for many, that may not be the wisest decision.
Why You Should Consider Selling Your Home In Retirement
From a financial angle, there are many reasons why retirees or soon to be retirees should consider selling their homes when they enter retirement.
Pay Off The Mortgage & Invest the Equity
Many people can live comfortably in retirement if all of their debts are paid off. However, fewer homeowners are entering retirement debt free.
Of homeowners over 65, “the proportion with housing debt rose to 35 percent in 2012, up from 23.9 percent in 1998” (The New York Times).
Strictly considering finances, not emotions, staying in a home you owe money on doesn’t make sense. Not only do you need to pay the mortgage payment every month, but your equity is tied up in an asset that isn’t very liquid. Getting out of the house if the equity is needed would take some doing.
If you sell the house and move into a cheaper home that you can buy outright, you no longer have the monthly mortgage payment, often freeing up $1,000 or more from your monthly budget. In addition, you also can invest the equity in your home into your retirement savings.
Reduce Other Expenses
Those with families often live in larger houses that accommodated the kids, their friends, and all their stuff. Once the kids move out, parents may find themselves in a house that is too big for their needs. By selling the house and moving to a smaller home, they can pay less on many expenses including utilities, property taxes, and maintenance expenses. These expenses alone can add up to $500 or more per month.
If you are free of the monthly mortgage as well as maintenance and utility costs, plus you have the equity to invest in your retirement, you may find that you can retire earlier than you thought, often by several years. What could you do with those extra years in retirement? There’s something to be said for retiring while you’re still healthy enough to enjoy your newfound freedom.
Footloose And Fancy Free
While selling your home may initially be terrifying and feel as if you’re security is ripped from you, it may also be a blessing. Not owning a home can open you up to all sorts of adventures such as traveling, or living in a new area of the country, or settling into an apartment for retirees where you no long have to worry about yard maintenance and other household chores.
Being emotional about our homes is understandable. After all, our homes are where we raised our families and spent years of our lives. Some of our best memories are there.
But if you can set the emotions aside, you may find that selling your home launches you into a much more comfortable retirement than you would have if you kept your home.
Do you plan to sell your home in retirement, or are you emotionally attached and plan to stay there?
I’m still a ways away, but my plan is to downsize and get a cheaper, smaller home in retirement.
I also plan to do that, but I know many, many people who are emotionally connected to their homes, even if they’re much too big now that the kids have moved out, who won’t think about selling.
Ramona @ Personal Finance Today says
We’ll probably rent our 2 city apartments and this would allow us to live a pretty nice life in a rural area, where we’re currently renovating a small house (on a huge land). There’s no reason for us to sell, since we don’t need too much money right now and the 2 rents we’ll collect would give us a very good living standard there. Not to mention I’ll probably keep on working online and earning a good income.
In some cases selling out is a great idea, in others collecting rent would do the trick :)
Dan Murphy says
There is another option. A Home Equity Conversion Mortgage (HECM). Don’t scold me for mentioning a reverse mortgage before you hear me out!
These are newly designed and backed by the government. Basically they can eliminate your mortgage and/or allow you to have an increasing line of credit on your house. You ALWAYS have equity in your house and can sell at any time (so long as you die before 120 years old).
As a financial planner, I love this idea because it allows people to stay in their home. Tap into the equity if needed and the best part is that it gives an option to pull money out of a non correlated asset if the market takes a dive!