Authors give advice to help homeowners 'Retire on the House'

By JACK SIRARD
Sacramento Bee

For years, investors were advised to view retirement funding as a three-legged stool supported by Social Security, pensions and whatever else you could save on your own.

But that trio may no longer be enough. Because of uncertainties with corporate pensions and retirement funds, the authors of a new book say investors need to prop up their retirement planning with one more leg: the family home.

"Millions of retirees are sitting on substantial amounts of equity in their homes that they can use to help fund their retirement," said Jim Keene, co-author with investment writer Gillette Edmunds of "Retire on the House: Using Real Estate to Secure Your Retirement." "In fact, many new retirees have four times more money in their home equity as they do in their stocks."

Keene, a Walnut Creek, Calif.-based certified financial planner with 25 years in the financial services industry, says there are a number of financial options that homeowners can use to augment their retirement funds.

Among them: reverse mortgages, home equity lines of credit, moving to cheaper housing markets or innovative ways of selling a home to family members, he says.

Keene, a regional manager for Wells Fargo Private Client Services, points out that reverse mortgages have soared in popularity in recent years.

He notes that reverse mortgages essentially are loans that enable the borrower to take out equity _ either a lump sum, a credit line or monthly loans _ that do not require selling the home or giving up title. The loans do not have to be repaid until the home is sold or passed to an heir upon the owner's death.

"In order to get a reverse mortgage, a number of requirements must be met, including the fact that the borrower must be at least 62 years old and that the borrowers must go through a mandatory loan counseling session," he says. One of Keene's biggest cautions is that borrowers need to know precisely how much these loans cost. "The up-front fees can be quite high," he warns.

Although "reverse mortgages are not nearly as competitive as they should be," Keene says, he expects that will change rapidly in the coming years.

An attractive alternative, he says, would be a simple home equity line of credit.

"If you choose this course of action, it allows you to draw on funds only when needed, which gives you maximum flexibility. At the same time, usually there are no loan origination fees and you can make interest-only payments," he says.

Another strategy, Keene says, is simply to sell your home and move to a cheaper housing market. "It's something that we've seen for years in the Bay Area as residents have moved to places like Sacramento, Reno and Las Vegas," he says.

But selling and moving out of town is a very tough decision. Most people who sell their homes don't move very far away, he adds.

Keene says another option growing in popularity is what he calls an "interfamily sale and leaseback."

Under these arrangements, family members purchase their parents' home and pay the parents either a lump sum or installment payments, which can be used for future expenses, such as elder care. It also eliminates real estate commissions and can have helpful tax consequences, according to Keene.

Such arrangements have real value in situations "where you have the parents wanting to stay in their house while the next generation wants to keep the home in the family," he says.

Keene notes that in California, children can use this home buying technique and assume the low property tax assessment that their parents pay. In addition to keeping the home in the family for another generation, he says, a sale-leaseback arrangement maximizes the home equity available for use by the retired parents.

While Keene says the process is relatively simple, it seems to me that professional help is a must in drawing up the necessary documents to be agreed to by all parties.

Overall, Keene's suggestions make a lot of sense. You'll find a wealth of information and practical advice in "Retire on the House" that could turn your home equity into another leg for a solid retirement.

(Distributed by Scripps-McClatchy Western Service, http://www.shns.com.)