When Your Retirement Strategy Relies on Selling the Family Home

For many households, a home is their largest asset — and for some, it is also a central part of retirement planning.

Older Americans hold $13.8 trillion in housing wealth, according to Realtor.com. That has led some homeowners to count on selling their property to unlock cash and support a more comfortable retirement, while others may need to convert home equity into income. Here’s how to think through a retirement plan that depends heavily on your house.

Why a home can become the retirement plan

Home values have risen sharply over the past few decades, and in some cases people have more wealth tied up in real estate than in retirement accounts. Retirees can use home equity to pay for a range of expenses, but it works very differently from withdrawing money from a 401(k).

Drawing on home equity lowers your ownership stake and adds interest costs. Borrowing against the home usually means taking out a loan, and the process can take several weeks. Some retirees may also live longer than expected and eventually exhaust their home equity. Without a backup plan, they could face difficult choices with few good options.

That is one reason many retirees choose to downsize. Moving from a high-cost market to a smaller home in a less expensive area can free up cash without taking on additional debt. For empty nesters, a smaller space or a single-level home can also be easier to manage.

What can go wrong when a sale is necessary

Even if a home represents substantial wealth, retirees still need a buyer willing to pay the market price and another home they can afford to buy. A weak housing market, high transaction costs and difficulties finding a replacement property can disrupt the plan.

And even when the numbers make sense, some owners simply do not want to sell. They may feel deeply connected to the home, the neighborhood or the surrounding community. Staying put can be the right choice if finances allow, but some people may still need to move in order to protect their long-term stability, even if they are not emotionally ready.

How to reduce the risks

Selling a home can produce a major financial gain, but it also means securing a new place to live. It helps to compare how expenses would change if you moved into a smaller home, rented, or chose a senior living arrangement.

Planning well ahead is important so the transition does not come as a surprise. A financial planner can help map out the move and estimate how it would affect your overall finances.

Some retirees consider other options, such as renting out part of the home or using multigenerational housing. Adult children may also be struggling with current housing costs, and living together can make expenses more manageable if everyone agrees. It is also wise to save for retirement beyond home equity, including in accounts such as 401(k)s and individual retirement accounts (IRAs), so your future does not depend entirely on your house.