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4 Ways to Tap Your House for Cash

Even in a down market, you can safely unlock your equity

1. Sell your home

In 2004, Fred Brock was writing The New York Times's Seniority column when the paper offered him an early retirement package. So Brock took a new job teaching at Kansas State University in Manhattan, Kansas. After selling his Dutch colonial in suburban Montclair, New Jersey, for $460,000, he pocketed $235,000 after commissions and other closing costs. "We had bought it 10 years earlier in a down market for $185,000," he says. "So we paid off what was left of our mortgage and paid $200,000 for a house in Kansas that was much nicer and larger, and lived there mortgage-free."

The author of Retire on Less Than You Think, Brock is a fan of moving to less expensive locales in retirement. "Even with the decline in the housing market, it's a good idea, because prices are declining most everywhere. You may not get as much when you sell, but you'll get more when you buy." 

Moving just 50 or 60 miles from an expensive large city will grant you continued access to major airports and hospitals.

Brock likes this strategy so much that he's done it twice: Last year he sold his home in Kansas for $226,000 and bought a new place for $179,000 outside Tucson, where he's now an adjunct professor at the University of Arizona. "These are moves that show a progression that anyone can do — and without leverage," he says.

University towns are high on many experts' lists of good locations for retirees, thanks to their affordable housing, cultural amenities, and top-rated medical facilities.

See also: AARP's Best Places to Retire 2011.

But if you don't want to uproot your life completely, how about seeking cheaper digs nearby? Moving just 50 or 60 miles from an expensive large city will grant you continued access to major airports and hospitals, according to Bert Sperling, president of Sperling's BestPlaces, which analyzes data on people and places around the United States.

"If you live an hour or two away from the city, you can have all that, but you don't have to compete on housing prices with people who need to be closer to the city for their jobs," he says. Depending on real estate values in your part of the country, you could extract hundreds of thousands of dollars in equity from your housing investment (see When it Pays to Move). What's more, federal tax law lets you keep as much as $250,000 of the gain tax-free if you're single, and up to $500,000 for couples. That money can be used any way you like; the rule applies so long as you've lived in the home you're selling for at least two of the past five years.

Next: Is a reverse mortgage right for you? >>

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