Once upon a time (i.e., 2006) in a magical place called the Bay Area, the real estate market got so heated that it became commonplace to hear coffee shop patrons trading stories about their little old million-dollar houses. It became equally commonplace for this excess of home equity to create a false sense of financial security, causing many a homeowner to save less for the future than they might have otherwise. This practice was just as inadvisable as it was common, as evidenced by a retirement planner’s billboard at the time, which read:
“‘My house is worth a million dollars’ is NOT a retirement plan.”
Many people treated it as though it was, to their detriment.
Relying upon your home equity for retirement requires that you sell the place at some point, cashing out and moving to someplace cheaper (and potentially less desirable) when you stop working. That said, there are a number of other, less risky ways you can use your home five, 10, or even 20 years before your planned retirement date to:
- Save cash now, so you can add it to your investments
- Increase your income now, also adding it to your retirement nest egg, and/or
- Reduce your expenses later, which might allow you to retire sooner (at a time when retiring at all is a true feat)
Here are six strategies for using your home to help you retire — without having to sell the place and retire to Timbuktu:
1. Put your spare space to work
Depending on where you live and whether you have room, you may be able to rent your home out, a little bit at a time. On sites like VRBO.com and Airbnb.com, you can rent out as little as one room, a mother-in-law unit, or your whole house for one night, one week, or one month (or any combination of these). Savvy homeowners are increasingly renting out spare rooms or floors for the long term.
2. Hack your utilities
If you have weatherstripping and dual-pane windows, you definitely stand to save some cash on your monthly utility bills. But in some areas, homeowners might also be able to save big time by opting for solar power service. These companies sell solar power as a service, on a long-term contract so homeowners don’t have to pay for panels, and then charge a lower power rate than the traditional utilities.
What you save over these years you can redirect to your retirement. Some of these companies also allow you to fix your utility rate for a 20-year period so that in your retirement years, you will not be exposed to the unpredictability of energy rate increases.
3. Pay off your mortgage early
You can supercharge your retirement plan in two ways: you can boost the income you’ll have to save and live on, or you can slash your future living expenses. The largest of these living expenses is, of course, your mortgage. For my grandmother’s generation, the norm was to pay off your 30-year mortgage right about the same time you were winding down a 30-year career. But today, it’s much more common for people to retire with 10 years or more still left on their mortgages.
One way to get to retirement sooner? Pay off your mortgage early. If you can’t swing making a higher payment each month, try this: simply round your monthly payment up to the nearest hundred or thousand dollars when you can afford it. You’d be surprised at how even small, extra payments can snowball into an early mortgage payoff.
4. Tune up your mortgage
If you’ve been in your home a few years, it can be easy to tune out of the whole mortgage scene. But the news now might be better than you think, as home values are starting to edge up, and rates are still uber-low. If you have a 6% home loan you got six years ago, you stand to save thousands by refinancing into a lower-interest-rate loan. And that’s thousands you can put into your retirement fund. (Of course, the precise amount you personally could save from refinancing depends on your current interest rate, your loan amount, and the costs you incur refinancing.)
5. Start a side business from home
Put your home to work! Whether you use your space to dog-sit, baby-sit, bake, or make preserves to sell at the farmers market, using your home to start a side business or to work a side job can pull the “extra income” lever of the retirement-cushion-fluffing equation. It might also enable you to claim a home office deduction on your income taxes, depending on whether you’re able to dedicate the space completely to your business endeavor.
Consult with a tax expert to be sure you’re taking the appropriate steps; depending on how you structure your business, you may end up increasing your tax burden, an unpleasant result a real pro can help you avoid.
6. Trim your taxes
- Follow these steps: Type your address into the search box at com.
- Compare the Trulia Estimate against the tax assessment (you can find your assessed value on the same page under Property Taxes, or on your tax bill).
- If your Trulia Estimate — or the prices you know nearby homes have recently sold for — is at or below the assessed value, you may want to apply to have your home’s value reassessed.
On your county tax assessor’s website, you’ll find the instructions and paperwork for submitting this request. (If you don’t, give them a ring!) They generally will ask you to tell them what you think your home is actually worth, and to provide some recent, comparable sales to back that dollar amount up (scroll all the way down on your home’s Trulia page to the Sold Properties section for recently sold homes that might work).
The theme? If you can save on taxes, utilities, or mortgage interest, that gives you the potential to save tens, even hundreds of thousands of dollars between now and retirement — much more than cutting back on coffee or the occasional meal out. Same goes with using your home to bring in some extra income or paying off your mortgage early. The potential retirement-boosting results are unparalleled.