1 New Way to Use Your Home as Your Retirement Nest Egg

Opinions differ on whether or not owning a house is a good investment strategy. I happen to believe that it is, but you may take the opposite view. If so, what would you say if I could convince you that owning your own home can be an excellent – and simple – way to plan a secure retirement?

A utilitarian savings account
Throughout their adult lives, the majority of Americans will either buy their own home, or rent. In either case, there will be basic housing expenses to be paid each month, in the form of either a mortgage or rental payment. While the former expense builds equity in your house, the latter builds equity in your landlord's house. Since you will be paying some kind of shelter costs anyway, why not allow that payment to work in your favor over the course of 30 years?

In my opinion, this type of investment will benefit anyone, even if a house doesn't appreciate much in value over three decades. For those nearing retirement, however, that house can begin to look like a nice big piggy bank – one that also served as a home for all those years.

Renting: The better retirement option
Once you begin to seriously think about retirement, you may decide that home ownership is too much responsibility. Renting can give you the flexibility to live where you want to, as well as free you from the chores of upkeep, and the expenses associated with home repairs.

There are numerous advantages to renting compared to home ownership once you retire. Here are a few:

  • You will be able to test a new locale without being tied down by property ownership;
  • Moving closer to amenities such as shopping, health care facilities, and public transportation may enable you to make do without a car;
  • Rental complexes often offer luxuries you likely would not have at your own house, such as pools, spas and dance classes, right on site.

Many retirees worry that renting will cost more than a home with a paid-off mortgage, or selling their current abode and purchasing a smaller house. The New York Times recently analyzed which is cheaper, noting that buying a house for $250,000 was the best option for most people, unless a similar home could be rented for about $960 per month. Retirees, however, often have very different priorities than younger folks.

Aside from the fact that buying another home limits your options, you would still have all the maintenance concerns of homeownership. For seniors looking to be more flexible, selling a $250,000 home and investing that money to subsidize their new renter's lifestyle could be very cost-effective, even with slightly higher-than-average rental payments.

For example, last summer, the average rent was estimated to be $1,231 per month. Even if rents jumped to $1,500 in 2014, the proceeds from the sale of your house would make a sweet addition to your retirement kitty. Plus, as the National Association of Realtors showed in its June report, the sales prices of single family homes are rising fast. The average sales price in May was $260,700, compared with a May 2013 average price of $251,700.

Of course, this scenario will work best when your existing home is paid off, or nearly so. Also, costs to own or rent can vary considerably; the interactive calculator in the aforementioned NYT article could be very helpful to help you figure out your own costs. Remember, though, that you must also factor in the sale of your home on the rental side of the picture.

Selling your home and moving into rent is a very personal decision, and you may not be ready to take the plunge just yet. However, looking at your home as a retirement savings account could prompt you to adjust the way you plan for retirement, perhaps opening up possibilities you never considered before. For long-term planning, your house could turn out to be one of the best investments you ever made.

How to get even more income during retirement
Cashing in on your home can play a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

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Comments from our Foolish Readers

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  • Report this Comment On July 21, 2014, at 2:28 AM, arkbiz wrote:

    I am retired and I have found home ownership to be quite lucrative. In the 33 years I owned my original house it appreciated at 5.5% compounded. In the two years I have owned my latest house, it has appreciated $102K.

    I'm not a real estate pro but I think I now know some things that help make a house a good investment. One is to avoid tract housing. Another is to buy a cheaper house in a bustling metropolitan area. Alternatively, buying a house in a growing area that has good weather and an excellent view can pay off. And be sure the house has great quality...generating a solid home inspection report and upmarket trim and fixtures.

    In reality, I took on one mortgage decades ago - for $64K. Today, after moving but incurring no further mortgage, I own a house valued at $451K. Any way you look at it, real estate has been good to me.

  • Report this Comment On July 21, 2014, at 9:54 AM, KatWisc wrote:

    While real estate may be very lucrative, it also may be a nightmare.. like every investment its not a sure thing as you have no control over what happens with school redistricting, employment in your town, etc...which can go up or down.

    One of the issues is most houses are built for a family, meaning more bedrooms and smaller everything else...vs a rental means huge state of the art kitchen and elaborate bathrooms but giving up living space which can be made up by the complex you live in.

    The biggest factor as you retire is while you can't 100% control rent you can make a decent guess of inflation...but a home.. you have no control over costs, new roofs, backed up sewer, furnace goes, massive increases in property tax, it can be a huge cash flow drain when you least can afford it (ie after a huge surgery you also didn't expect). Most people when they talk about real estate talk about the mortgage but neglect the extra costs.. ie are you hiring a maid because the house is too big, landscaper, snow plow, handyman .. and if your not updating your much is it really going to be worth 20 years from now when its the ugliest thing on the block and you can't figure out why no one will buy it.

    Home ownership is great, I've owned 4, but now that I want control over my expenses, I'm moving to an apartment with a kitchen twice the size I have now, a pool, a workout center, and about $1000 less a month in expenses ($150 off the utility bill alone because its new and built highly efficient). I'll take that $1000 and put in the market, which will grow and I believe make up for any "lost" appreciation on the house.

  • Report this Comment On July 24, 2014, at 5:15 PM, 45ACPbullseye wrote:

    @Amanda, congrats on the performance of this article, great stuff that is easy to understand! Best, Bill Stoller

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Amanda Alix

Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

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