(Image credit: Getty Images)Many retirees have built up significant home equity over the years, but surprisingly, they often overlook it in their retirement planning. With the average home equity for homeowners in the U.S. sitting at around $300,000, it’s a valuable asset that can be leveraged to support retirement.“You can do a couple of different things with your home equity,” says Pam Krueger, founder and CEO of Boston-based Wealthramp, an SEC-registered adviser matching platform. “It all comes down to picturing the funnel. It starts wide at the top, and then, as you start to learn there are costs and rules, the funnel gets skinnier.”The ‘how’ of using home equity in retirement is straightforward — you can either cash out or borrow against it. The ‘why’ is a bit more complex. For some, tapping into home equity is a way to supplement retirement income, moreover protect and grow their nest egg. For others, it’s a way to cover unexpected costs or fund a personal dream. But should you tap into your home equity in retirement? And if you do, what is the best way to go about it?Subscribe to Kiplinger’s Personal FinanceBe a smarter, better informed investor.
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Sign up for Kiplinger’s Free E-NewslettersProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.Profit and prosper with the best of expert advice – straight to your e-mail.Cashing out and boosting your incomeIf you’re worried about cash flow in retirement and are open to moving, selling your property and downsizing to a smaller, more affordable home could free up extra money for your retirement. However, this decision requires careful consideration. While a cheaper location might seem appealing, it’s important to assess whether it could lead to isolation or make transportation difficult.“It could make sense to downsize and own a home free and clear, but you need to do the research,” says Denny Artache, president and CEO of Artache Financial Group, a financial planning firm in Jupiter, Fla. “You might own the home outright, but if the nearest supermarket is ten miles away, can you manage that?” Additionally, be cautious about choosing a property that could be hard to sell in the future or one that’s prone to natural disasters.Beyond improving your cash flow, downsizing to a smaller home and owning it outright can also reduce the risk of running out of money in retirement, according to research from Morgan Stanley. The investment bank looked at a scenario where a retiree downsizes to a smaller home that she outright owns versus renting a comparable one. Then, if over time her savings become depleted and she needs income, she could sell the home and live in a rental. In this scenario, the likelihood of running out of money decreases significantly.When deciding whether cashing out is the best move, you also need to consider tax implications. If you make a profit from selling yo
