One of the biggest dangers of the severance pay system is inflation, and historically, owning real estate has been a great way to combat it. Chuck Robinson of Sensible Money details how key homes and rentals affect retirement income and planning.
Major dwellings
The retirement income distribution plan includes the payment of assets at the time of retirement. For this plan, residential real estate is considered an asset but is not involved in the plan. Robinson instead makes it clear that the property will be on the balance sheet along with the property in the house. This is a statement detailing the balance between income and expenses for the previous period.
He also states that some people do not have a mortgage when they retire, but in practice they do not recommend doing so. “Honestly, in many cases, especially when interest rates are very low, I think historically it makes more sense to take advantage of the house to get a mortgage and invest the money in stocks. increase.”
Downsizing
There are many emotional attachments to a “family home”, but people need to look to the future when they are over 80 and think about how owning a home can affect them. From there, they either miniaturize or move to a long-term care facility, but according to Robinson, most of his clients choose to miniaturize.
Robinson said: “For many clients, I strongly support the idea of shrinking real estate and releasing huge amounts of capital as a sale of their current home. That is, they have a million homes. If you pay $ and it’s worth $ 1.5 million today, you’re basically getting a $ 1.5 million tax exemption. Even with a $ 2 million loan, they’ve only paid for a long time, 50 of them. You can get a term capital gain for $ 10,000. “
Don’t wait too long, whether you’re downsizing or moving to a long-term care facility. If you wait too long, you may be too weak physically and mentally to act.
Reverse mortgage
Reverse mortgages have been controversial over the last few decades. They are getting bad laps because if your heirs are unaware of it, it can hurt them in the long run. Despite being negative, Robinson got it for himself.
“I like it,” he says. “I don’t currently have a mortgage payment and I can choose to pay interest or not. [also] Increase the amount you can borrow each year. It’s currently $ 900,000, so you can borrow $ 450,000- $ 500,000 with a reverse mortgage. This money can be very helpful when you decide to leave the house in the 80’s.
Still, educating heirs about reverse mortgage planning is very important. When you die, or if you move to a care facility, they have six months to sell their home. You can request more time, but it’s important to put your home up for sale right away.
Rental income property
If you already have a rental property before you retire and don’t care about management, you may want to be between the ages of 65 and 80. However, if you’re 65 or older and want to own a rental property, it’s not as easy as it looks.
“I hear these wonderful stories of people who turn a small investment into this huge fortune,” says Robinson. “I’m not against it, but I warn retired people to think about how long they want to keep doing this. 65? Yes. 75? Maybe. 85? Uh.”
When you’re in your 80s and ready to abandon your rental property, it’s important to think and plan an exit strategy. Determining the tax situation is very helpful, especially if you are assessing social security before it is collected, or if the minimum required distribution is initiated. This affects the balance sheet by allowing you to claim more capital gains.