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Like
many homeowners in this country, you
probably saw your house appreciate in
value quite a bit over the past few
years. That is the good news. The
not-so-good news is that, during this
same time period, your savings and net
worth might have stagnated or fallen.
What does this mean for you? It could
mean that when you retire, you do what a
lot of current retirees are doing: using
the equity in their homes to fund a
large portion of their retirement. And
that is not a good thing.
Before looking at how
retirees are tapping into their home
equity, let us review a few statistics
from a recent survey by the Federal
Reserve. (The survey, released in early
2006, covers the years from 2001-2004.)
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The typical American household's net
worth (assets minus debts) increased
only slightly, from $91,700 to
$93,100.
-
The typical family's savings
(including retirement accounts) fell
from almost $30,000 to just $23,000.
-
The median value of homes rose from
$131,000 to $161,000, a 22 percent
jump.
By looking at these numbers,
you can easily see the problem that many
retirees are facing: too few liquid
resources available to comfortably
support themselves during their
retirement years. Consequently, an
increasing number of retirees are taking
out "reverse mortgages." This is a
special kind of loan that enables
borrowers to convert their home equity
into cash, either through a line of
credit or installment payments.
But if you ever decide to
sell your home, you will have to pay
back what you borrowed on your reverse
mortgage. And if you were to die and
leave the house to your children, they
would have to pay back the loan.
Clearly, these are
potentially big drawbacks to taking out
a reverse mortgage. And that's why, if
you have many years to go until you
retire, you'll want to give yourself
more options for boosting your
retirement cash flow. Here are two to
consider:
·
"Max out" on your IRA each year.
Put in the maximum allowable
contribution to your Roth or traditional
IRA each year. And fund your IRA as
early as possible every year; the more
time you have on your side, the greater
your growth potential.
·
Increase your 401(k) contributions with
every raise.
Each time you get an increase in salary,
defer more money in your 401(k) or other
employer-sponsored retirement plan. As
you enter retirement, you may be able to
boost your income by doing the
following:
·
Delay taking Social Security.
You can begin collecting Social Security
at age 62, but your monthly checks will
be larger if you can wait until your
full retirement age, which can be
anywhere from 65 to 67.
·
Purchase an immediate annuity.
An immediate annuity works pretty much
as its name suggests: You make a
lump-sum payment to an insurance
company, and you immediately start
receiving an income stream, which can
last the rest of your life. Make sure
you purchase an annuity from a company
that receives high ratings from one of
the independent rating agencies.
You worked hard for much of
your life to own your home. You need to
do whatever you can to keep it once you
are retired. |
