A secure retirement requires a sizable nest egg. The problem? Most people don’t have enough cash socked away. The bear market on Wall Street has eviscerated many retirement savings accounts. The average balance in 401(k)s and IRAs declined more than 20 percent last year, according to Fidelity Investments. Fifty-three percent of baby boomers say they’re behind in their savings and 51 percent of Americans retire with less than half of their preretirement income, according to Goldman Sachs Asset Management.
But there’s an often-overlooked asset that preretirees and retirees can tap to fund the retirement savings gap: the house they live in. About 8 of 10 Americans 60 or older are homeowners, and housing wealth accounts for about half (48%) of this age group’s median net worth, according to the Vanguard Group. Thanks to booming real estate prices in recent years, it’s not a stretch to start viewing your home as a 401(H)ouse retirement account.
Money under the floorboards
A recent research report from Vanguard titled “Home is where retirement funding is” says getting additional funding from your home “could be mission-critical to a secure retirement.”
The Vanguard analysis goes beyond the typical notion of downsizing from, say, a 3,000-square-foot home to a house or condo half the size to save money. Or tapping home equity via a reverse mortgage or home equity line of credit (HELOC) to help make ends meet.
Instead, Vanguard focuses on extracting equity by selling your home and relocating to a cheaper housing market. Its research shows that the typical migrating retiree 60 or older who sold their home and moved to a less expensive real estate market by crossing county lines or state borders extracted about $100,000 in home equity, representing 44 percent of a new home’s value. The median equity unlocked climbs to $346,699 for homeowners in the top 10th percentile who sell properties in the most expensive real estate markets and move to cheaper locales.