For generations of Americans, the family home is the largest investment they will ever make. And in most cases, it has given a tremendous financial return over the years. The family home is a pool of capital that many seniors count on for financial support as they move into their retirement years.

A recent Redfin report says that homeowners aged 70 and older now have $13 trillion in housing wealth — roughly 25% of the value of the housing stock in the country. But tapping that home equity involves making some tough emotional and financial decisions. Those decisions are better made sooner, rather than later – when your options may be limited.

The Housing Decision
The first decision is the most difficult: to stay or go. Memories have been made in the family home. But is this where you want to spend your retirement years? Moving involves more than finances. The next generation has to clear their stuff out of storage in the basement!

You might want to remain in the same area, because you have family members and medical providers who will be near to help as you age. Or the climate might be a factor, though leaving cold winters is often a tradeoff for hot, humid summers.
The financial considerations involve rising insurance costs, utilities and property taxes, as well as repairs and maintenance. Things you used to do on your own around the house, might require finding outside help, which can be expensive.

Selling Your House
A recent study by the Federal Reserve Bank of Philadelphia found that when seniors sell their homes they receive significantly less money than younger sellers, primarily because their houses haven’t been updated. Yet, “staging” a house for sale to bring in more money is both a financial and emotional stress for seniors. It’s difficult to watch your familiar home being transformed while you still own it.

Getting the best price at the least emotional cost can open you up to scams and ripoffs. You’ve heard the commercials for companies that promise to buy your house “as is” – taking away anything you leave behind. Yet, nationally, there are complaints that these home-buying companies offer significantly less than market value – as much as 60% below when you’d get if selling the traditional way.

So even if you need money fast, and don’t have the strength to organize a move and a sale of unwanted items, it’s worth consulting at least two realtors in your area to get an idea of the value of your home. While the house may need work, you might be surprised at what some people pay to “tear down” an older home in a good location. It comes as both a shock and an insult.

Alternatives to Selling
If you want to stay in your home, check out any state or local programs that will freeze your property taxes based on income. Or increase cash flow by working through your church of community organization to find a suitable and trusted “renter” to contribute to household expenses, living in your adult child’s former room.

And in Part 2 of this series, posted soon, I’ll explain how a Reverse Mortgage works, and its costs.

There are negatives in any tradeoff. It all depends on how important it is to stay in your home.

Considering the Next Place
Before you sell, take a good look at the alternatives. You should check out the true costs of that smaller condo, and whether an assessment is coming for a new elevator or roof. Senior communities may increase your rent in the future for the same taxes and repairs you’d face in your home.

And, if you’re moving into a CCRC – a continuing care retirement community – be aware that the deposit you make to buy into the community is likely spent immediately on current costs. Promises to repay if you move out, or die, are just a sales pitch not backed by any guarantee – unless a new tenant can be found for your unit.

Guarding the Sale Proceeds
If you’re planning to bank the proceeds and pay rent for the rest of your life, you’ll need to make sure you keep the money safely stashed in CDs or T-bills, avoiding the possibility of loss. That means avoiding your own investment greed, as well as requests from your adult children for a loan or other financial help. You’ll need this money in the coming years.

If you sell, taxes are not likely to be a problem. If you’re filing a joint return, up to $500,000 of capital gains in your home go untaxed ($250,000 on a single return). But additional gains are taxable – and may cause higher Medicare Part B premiums – so consult your financial advisor.

A Reverse Mortgage – The Saving Grace?
A reverse mortgage allows a senior homeowner (over age 62) to remain in the home, while establishing a line of credit, taking a lump sum withdrawal, or creating a monthly stipend paid out of the equity in the home. But the hidden costs and tricky language involved in these products mean you need trusted advice and independent counseling.
That’s the subject of next week’s column. And that’s The Savage Truth.