Every day, about 10,000 baby boomers turn 65, the “traditional” age for retirement – or at least, the age when many people decide to call it quits and leave their jobs. In years past, many retirees could count on a workplace pension combined with Social Security benefits and personal savings to help them afford their retirement as long as they had modest financial needs.
But today, that's all changed; Social Security has not been keeping pace with withdrawal demands and inflation, the lion's share of businesses no longer offer employee pensions, and the stock market volatility of a few years ago all but wiped out the personal retirement savings of millions of men and women nearing or already at retirement age. Add to that the longer life expectancy for both men and women and it's easy to see why so many men and women are worried about having enough money to afford to live during their retirement years. In fact, numerous studies have shown just how woefully unprepared most people are when they reach their retirement years with the average retirement savings hovering well under $100,000. What is a retiree to do?
Home Equity: An Overlooked Resource
By the time retirement has arrived, most men and women have built up considerable equity in their homes – equity that can provide a much-needed financial cushion and extra peace of mind. Although home equity is one commodity shared by the majority of baby boomers, it's often overlooked as a source of funds for retirees. At least part of that is due to the fact that home equity loans are most commonly marketed as loans for life expenses like weddings, college education or home improvements, and not viewed as traditional vehicles for helping to offset some of the expenses of retirement. That view has begun to change more recently as older Americans are more commonly including their home's equity in their retirement planning.
If you have equity in your home, there are two primary ways to unlock it: Consider downsizing to a smaller home now that your children are grown and on their own, or take out a home equity loan (HEL) or home equity line of credit (HELOC). Downsizing can free up cash when you sell your current home and purchase a less expensive home in return. But a recent survey by AARP found most retirees – about 90 percent of those surveyed – don't care to downsize; they want to remain in their homes as they get older, which makes home equity loans an especially attractive option. The primary difference between the two options is how the money is disbursed. A HEL gives you your money in a lump sum while a HELOC lets you draw from a line of credit as you need it. Not only can a HEL or HELOC help you handle the costs of retirement, it can also help fund improvements and modifications to your home that allow you to stay put as you get older.
Is a HEL or HELOC right for you?
If you're retired or you're planning on retiring soon, now is a great time to explore home equity loans.
Rates remain near historic lows, which means this is the ideal time to lock in a great rate. You've invested a lot in your home. Take a few moments right now to review our rate tables to compare all your options and see just how easy it can be for your home to start paying you back for a change.