As retirees prepare for their golden years, their primary asset often isn’t stocks or bonds—it’s their residence. By the first quarter of 2026, homeowners aged 62 and older had an unprecedented $14.92 trillion in housing wealth, per the NRMLA-RiskSpan Reverse Mortgage Market Index. While this equity can help finance retirement, it may also remain trapped in the property, potentially creating long-term financial strain.
The key to avoiding this burden is to have a plan for the house in retirement. Many homeowners assume they can simply sell their home if needed, but this is not a reliable safety net. A plan is necessary to determine how and when the house will be used to support retirement, whether through downsizing, renting out part of the property, or staying put.
Common Mistakes Homeowners Make
One common mistake homeowners make is counting on their house without a plan for it. They may assume they can sell the house at any time, but this can be a costly mistake. The house can only provide financial support in retirement if there is a clear plan for its use. This plan should include when to sell, how to use the proceeds, and what the costs of maintaining the property will be.
Another mistake is selling the house on the homeowner’s timeline, rather than the market’s. This can result in a lower sale price, as the homeowner may be forced to accept a lower offer in order to meet their deadline. To avoid this, homeowners should start planning the sale of their house 12 to 24 months in advance, and have enough liquid savings to avoid being forced to take the first offer.
Homeowners also often underestimate the costs of staying in their home. Even if the mortgage is paid off, there are still costs such as property taxes, homeowners insurance, and maintenance that must be considered. These costs can add up quickly, and may even increase over time due to factors such as rising property values or disaster-prone areas.
Financial Considerations
In addition to the costs of maintaining the property, homeowners must also consider the tax implications of selling their house. The IRS allows homeowners to exclude up to $250,000 of gain on the sale of their main home, or up to $500,000 for married couples filing jointly, but any gain above this amount is taxable. This can have a significant impact on the homeowner’s tax liability, and may even affect their Medicare premiums.
Homeowners must also consider how their decision to claim Social Security benefits will affect their retirement finances. Claiming benefits early can result in a permanently reduced monthly benefit, while delaying benefits can increase the monthly amount. This decision should be made in conjunction with the decision about how to use the home equity, as the two are closely related.
A Home Equity Conversion Mortgage, also known as a reverse mortgage, can be a useful tool for homeowners who are 62 or older. However, it is essential to consider how this type of mortgage will interact with Social Security benefits and other retirement finances. Using home equity to bridge a few years until Social Security benefits can be claimed at a higher rate can be a smart strategy, but it requires careful planning and consideration of all the factors involved. The Social Security Administration provides guidance on how to make this decision, and homeowners should carefully review this information before making a decision.
According to the National Reverse Mortgage Lenders Association, homeowners who work through these questions early can keep more of the equity they spent decades building, and get to choose their next move instead of having it chosen for them. By avoiding common mistakes and carefully considering all the factors involved, homeowners can make the most of their home equity and create a secure and comfortable retirement.
Older homes require bigger repairs, such as a new roof or HVAC system. Changes to make the home easier to live in, like a walk-in shower, may also be needed. Pricing out the next 20 years of carrying costs is essential before deciding to age in place.
