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One day you suddenly come to the realization that you've got more space than you
really need. If you're like most near or actual retirees, these feelings may
also accompany the realization that you don't have as much money to live on
during your retirement as you'd like. Don't despair! Now may be the time for you
to trade down -- sell your current house and either buy a less expensive home or
become a renter.
Tax goodies for house
sellers
Thanks to the Taxpayer Relief Act of 1997, house sellers can more easily
shield from tax a big portion of their house sales profits. Single taxpayers can
avoid capital gains taxation on up to $250,000 and couples filing jointly up to
$500,000 of profit. As long as you lived in the house as your primary residence
for at least two of the previous five years, this tax exclusion is available to
you.
Presuming you're willing to sell your primary residence, the new house sales
tax law makes it easier to convert your home equity directly into liquid
investments you can live off during retirement. Of course, such a strategy
requires you to either trade down or become a renter; trading to an equal cost
or more expensive home won't free up more of your money.
Emotional considerations
Retiring is a major life change. Take your time in assessing your options and
don't be rushed into making decisions you're not ready to make. Be sure that you
understand the financial ramifications of a move. At the same time, don't make
the mistake of basing your retirement housing decision entirely on a calculator,
while ignoring your personal needs and emotions.
Getting advice
(if you need it)
Sometimes, you just get buried beneath an avalanche of financial questions in
your life -- including whether or not to sell your home -- and you may need
someone to help you dig yourself out. Hiring an objective, competent, and
affordable advisor may be your ticket to better decision-making.
If your experience is like that of many who have come before you, finding
such a good advisor will be a challenge. Most financial planners work in a way
that creates conflicts of interest -- either because they sell financial
products that pay them a commission or because they manage money for ongoing
fees.
Most financial advisors spend the bulk of their time making investment
recommendations and analyzing retirement plans, not helping people like you
decide whether to sell their homes. If you do end up hiring someone to help
analyze your situation, the more educated you are, the better able you'll be to
evaluate that person's competence and to make efficient use of your advisor's
time and, hence, your money.
Always clarify what expertise you're seeking -- be it tax, legal, retirement
planning, investment advice, or whatever. And remember that a good advisor's job
is to lay out the facts, discuss the options, and recommend what's in your best
interests.
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Email
Scott
E-mail Scott Pessin