Confronting the Costs of Retirement: Housing

When it comes to planning for retirement, one of the most common questions is, “How much does it cost to get by?” And the answer is simple – not much less than it did before retirement. According to federal data on consumer spending, households led by 65 or older spend an average of $47,579 per year1 – just 22% less than the average across households of all ages. While spending patterns in retirement were once thought to decrease drastically, this simply isn’t the case anymore – especially when accounting for today’s record-inflation. So where are today’s seniors spending the most? You may have guessed it – housing.

Among older households, over one-third of spending is related to housing1 – including mortgage payments as well as property taxes, insurance, maintenance and general upkeeping. While these expenses can vary by location and housing type, on average, this translates to an average $17,435 annually1. Ka-ching. And while you may once have never even given these expenses a second thought, keeping up with them on a limited or fixed income can prove challenging. Fortunately, there are some things you can do to get ahead of housing expenses. Consider the following ways to confront the costs.

Prioritize Paying Off Mortgage Debt
If you’re nearing or have entered retirement with a mortgage – you’re in good company. A study found that nearly 10 million homeowners ages 65 and older are still paying off mortgages2. However, when it comes to housing costs, mortgages are undoubtedly the most significant monthly expense. The sooner you can pay off the remaining balance, the sooner you’ll be able to free up more funds for your golden years.

And while paying off a mortgage is much easier said than done, there are some strategies you can take – even in retirement. Consider making additional payments toward your principal whenever possible – even if you can only afford to do so once or twice a year, these payments will go a far way in lowering your balance. Adopting a bi-weekly payment schedule is also an effective strategy. Instead of making your full mortgage payment once every month, try paying half the amount every two weeks. At the end of the year, this approach will amount to 13 monthly payments – and is hardly noticeable when factored into a monthly budget. Check out more strategies to mitigate mortgage debt on our blog and keep reading to see how you can tap into home equity to eliminate monthly mortgage payments3 altogether.

Share Your Living Space
Roommates aren’t just for college students and young people! A smart way to lower housing expenses is by splitting them with others. If you have a large home that is being under-utilized, it could make sense to have someone else move in, whether it be a friend or someone new to the neighborhood. In addition to gaining some company, you’ll be able to split the rent or mortgage payment – not to mention chores around the house! While this concept of home sharing may not be for everyone, it’s worth considering as you enter advanced retirement years. Think “Golden Girls” style of living!

Rent out Spare Rooms
If home sharing isn’t for you, consider renting out extra space in your home to make some extra money and offset housing costs. If you have more bedrooms than you need, you can post your spare rooms or space on web services like Airbnb to make them available to renters. While some retirees opt to take on long-term tenants, others choose to rent out their space on an occasional basis to make some extra cash, especially if/when there is a local event bringing people to the area.

Downsize to Your Retirement Dream Home
It’s no secret that our dream homes of 20, 30, or maybe even 40 years ago may not be best suited for us as we reach advanced age.  Once your children have grown up and moved out, you quickly realize just how much house you have – and the maintenance and costs that come with it. As Baby Boomers are coming of age, they’re increasingly opting to downsize to a smaller home that costs less – and can give a quick boost to their retirement nest eggs.

While downsizing to a smaller home boasts tremendous financial benefits, the concept also boasts potential lifestyle benefits. From less home upkeep to opportunities to migrate to a warmer climate, be closer to family, or even keep an active social lifestyle, downsizing offers a wide world of possibilities as you embark on your next chapter.

Consider the Advantages of Relocating
Once you no longer must live near your job, you may find relocating to be an advantageous option. Relocating to a new city or state with the weather, amenities and entertainment options you desire can be a great idea – and often, for your wallet, too. Certain states are known for being retiree-friendly and have low or no sales or income tax at all. And with the cost of living varying from state to state, you’ll want to be sure your desired destination can accommodate your savings and lifestyle, even if on a fixed income. Check out some of the criteria that make a great place to retire on our blog.

Considering downsizing or relocating? A reverse mortgage may help make the process faster and easier. Also called a “HECM for Purchase,” this type of loan allows you to buy a new home while securing a reverse mortgage – all in a single transaction. Many seniors like this option because it can help save money by reducing closing costs since a single loan is taken out.

Tap into Home Equity
If you’re part of the nearly 90% of homeowners that wish to ‘age in place’4 and stay in your home well into retirement years, tapping into your home equity with a reverse mortgage can be a viable option to help pay for living expenses. Insured by the Federal Housing Administration (FHA), a Home Equity Conversion Mortgage (HECM) – also known as a reverse mortgage – allows homeowners ages 62 and older to convert a portion of their home’s equity into cash5 without having to sell or leave the home. If there’s an existing mortgage on your home, the loan proceeds from the HECM are first used to pay off that loan – and since no monthly mortgage payments are required on the reverse mortgage3, you can eliminate that monthly expense and keep more cash to use as you see fit. Want to see just how much you may be able to receive in reverse mortgage proceeds? Run the numbers and see for yourself with our Free Quote Calculator.

While housing may be your largest expense in retirement – it may also be your largest source of wealth. With homeowners ages 62 and older now accounting for more than $9.57 trillion in housing wealth6, you may be surprised to see just how much is in your home.

At Longbridge Financial, we can help you use this hard-earned home equity to address the financial challenges that impact so many Americans who are in, or preparing for, retirement. Reverse mortgages are all that we do – and we’re committed to recommending the program only after we’re certain it’s right for you. If we ever feel that a reverse mortgage isn’t right for you, we will tell you so. Not all lenders make that pledge.

Want to learn more? Contact the Longbridge team of reverse mortgage experts today.

3 Real estate taxes, homeowners insurance, and property maintenance required
5 The loan balance increases over time as interest on the loan and fees accumulate

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