Your Home and Your Retirement (Part 2)

by The Real Estate Faction on March 4, 2011

2Making a MoveSelling your existing home and relocating to a more affordable house or condominium may be a reasonable option if you have considerable home equity and the shift won’t negatively affect your lifestyle. As part of your research, remember to investigate the overall housing costs in your desired area. For example, real estate values and property taxes typically vary considerably by locale, sometimes even within the same state. Additionally, before relocating to a new area, you might want to spend significant time there to make sure it is compatible with your lifestyle and interests.

When calculating your home’s sale price as part of the retirement income equation, be sure to use realistic assumptions. Real estate prices have risen at above-average rates in recent years (see table on average annual rise in home prices, below), and there is always the potential that they may level off or even decline in the future. When planning your retirement income, remember the importance of diversification — owning a portfolio of stocks, bonds, and cash investments in addition to home equity — to help guard against market swings in any one area, including real estate. Of course, there are no guarantees that a diversified portfolio will protect against overall financial losses, but a diversified portfolio can position you to potentially take advantage of gains in several financial sectors.

Finally, when selling your home, consider that the first $250,000 in capital gains ($500,000 if you sell jointly with a spouse) is not subject to federal taxation if you lived in the house for two years or more

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