When planning for retirement, most people concentrate on 401(k) matches from their employer or maximizing their Roth IRA. Yet, there's another potential avenue to supplement retirement savings - tapping into home equity. Vanguard's Senior International Economist, Kevin Khang, discovered that some retirees enhance their retirement funds by selling their homes and moving to more affordable locations.
Housing, according to Khang, is an essential component of retirement wealth, particularly with current housing market dynamics. Initially, it may seem counterintuitive to consider housing wealth as a source of funds. Nonetheless, the evolving real estate landscape over the last three decades illustrates that individuals can extract significant wealth from their homes when the timing is appropriate.
This strategic relocation predominantly benefits those in their 60s, especially in a robust housing market. The process involves selling a home in a potentially high-value location and relocating to a financially practical region to maximize the proceeds from the sale.
Notably, investing in homes situated in expensive cities like New York is still a topic of debate. Historically, the housing market merely kept pace with inflation. Yet, some local markets, dubbed 'superstar cities,' experienced skyrocketing home prices over the past few decades. However, with the advent of a hybrid work model due to the pandemic triggering a drop in demand for commercial spaces, it remains to be seen whether this trend will continue.