It seems like a ready-made retirement plan: once you enter your golden years, you’ll sell your home (or get a reverse mortgage) and live on the money you’ve worked your entire life to accrue. This strategy may work for some, but there’s no guarantee it will fit your financial needs. Before you make real estate your primary financial plan for retirement, consider these ideas.
If you’re thinking of selling your own home to help pay for your retirement, there are a few factors to consider, such as how the sale of your home will affect your eligibility for retiree assistance programs and how your new plan to rent will affect your lifestyle. In addition, if you opt to participate in a reverse mortgage program, you’ll actually end up accumulating debt in the form of interest on your borrowing amount. And once you’ve sealed the deal, it isn’t as if you’ve got a landlord to take care of things; you still have to pay for any large-scale maintenance on your home while you live in it, not to mention the property tax.
The second real estate scenario is a trope so common that it’s beginning to border on cliche. Eventual retirees see real estate investment as a viable plan for raising money to live off of when it comes time to retire. But this plan has several holes, the main one being that no one can tell you how the real estate market is going to pan out as you come closer to retirement age. If you’ve invested in a piece of property to save money for retirement and the value of it goes south, you could actually end up with more debt, instead of savings.
Both of these cases should be motivation enough to come up with a multi-faceted retirement plan to keep you financially secure. One of the best steps you can take, if you haven’t already, is to find out more about your employer’s retirement savings plan and/or pension plan. Or, if your employer doesn’t offer these benefits, you can start your own Individual Retirement Account, which not only gives you a reliable way to save but also offers you a tax shelter on the income that you put away.
Once you have a vehicle for saving, start thinking about how you can build upon your nest egg. You’ll get social security benefits, but this is meant to be a supplement to your savings, not a primary means of living. In the meantime, you can make small income here and there by turning a hobby into a part-time job or selling discs on musicMagpie, for instance. Or you could plan to contribute all of your income tax refund to your retirement account each year for a large annual boost.
The most important goal to have when it comes to retirement is to build a portfolio of varied sources of income. It’s great to work toward a real estate goal, but a retirement savings account will keep you fiscally secure in case that plan falls through. A better option is to monitor this plan along with a savings account and any benefits that you can expect from the government; weave these several income possibilities into a strong net, and it will support you in your golden years.