There is certainly no shortage of retirement planning strategies available to individuals who actually take the time to consider them. What most financial experts do agree on is that the closer you are to retirement, the less time you have to recover from a loss. For that reason, many people start dialing down their risk factors as their age increases.
One way to minimize risk is to invest in things that you know and understand. For the majority of homeowners, their largest asset is the equity in their home with which they generally have more familiarity than other types of investments.
Buy the home you’d like to retire to today and use it as a rental property. Finance it with a 15 year loan so it will amortize quickly and possibly be paid for at retirement.
Continue living in your current home until you’re ready to move into the home you’ve designated as your retirement home, which will not create a taxable event. Prior to moving in, you can rehab the home so that it fits your style and needs exactly.
If you’ve lived in the current home for at least two of the last five years, you can exclude up to $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers. The proceeds could then be invested for income.
Some of the attractive features of this proposal is that you’re familiar with the operation of a rental due to similarity of owning a home. Most experts agree that home prices will continue to rise and so will rents. If the retirement/rental home is in the same area you now live in, then the maintenance people that you use for your home can also work on your rental. If you don’t want to deal with tenants that can easily be delegated to a property manager. Low mortgage rates with short terms and high rental values contribute to positive cash flows that will pay for the property.
Obviously, there are many other considerations you’ll want to investigate with your tax and real estate professionals. These can get the conversation started.