Vanguard Study Reveals: A Quarter of Seniors Could Relocate and Boost Retirement with Home Equity

With the cost of housing and groceries surging in recent months, many retirees have seen their budgets get busted simply trying to maintain the quality of life they have enjoyed for years. Surveys now routinely show most Americans believe they need significantly more than a million dollars to afford a comfortable retirement. 

Fortunately, a new study suggests many people concerned about the prospects of enjoying their golden years could supersize their retirement nest egg with the help of their home.

In an October report published by Vanguard, researchers estimate that roughly a quarter of Americans 60 and older could move to a lower-cost housing market and extract equity from their homes to bolster their retirement readiness.

“In 2019, homeowners 60+ with home prices near the national median could have relocated and extracted, on average, $99,000 in equity from their homes,” the study finds. 

Homeownership remains a cornerstone of financial security for Americans, especially for retirees. Could retirees be missing a huge financial planning opportunity, overlooking the equity available from the land right under their feet? 

With input from local financial advisors knowledgeable in real estate, seniors can make better judgment calls on whether the benefits of a retirement relocation strategy outweigh the change of address and forging new friendships.

Home Advantage

Homeownership remains a cornerstone of financial security for Americans, especially for retirees. 

Last year, roughly 80% of Americans aged 60 and older owned a home. This suggests the value of home equity often outranks other retirement savings, considering that, as of 2020, fewer than 60 percent of Baby Boomers in the country owned a retirement account. 

“You think everyone works for a Fortune 500 company, and everybody has a pension plan, but that’s not the reality,” Craig Martin of J.D. Power told The Hill this year, pointing out many Americans work for smaller companies or own a small business.

This underscores the importance of property. While the vast majority of retirees have a home now, it may not be the same for future generations.

The supply and demand in the U.S. housing market are squeezing aspiring homeowners out of the market. Since 2016, inventory in the national housing market has plunged 60 percent, while prices have risen 50 percent. This has added to growing pessimism among renters about the affordability of homeownership. 

Those who already have equity in property have the option to leverage their land to polevault their retirement to a whole new level.  

Which State?

Of course, locales across the country are not equal. If American homeowners make the move, they will either enjoy a bump in their quality of life or have to dig into their savings to afford it.

The Vanguard study reviewed the relative value of property across all fifty states. It found that the average retirement-age homeowner in California, for instance, could extract 77 percent of their previous property’s equity by relocating. For retirees in Florida, they could unlock roughly 25 percent. 

Homeowners in Missouri, however, would have to spend an additional 15 percent to make a move. This serves as a reminder the strategy won’t necessarily work for everyone across the country. 

There are other reasons it may not work optimally for all retired Americans.

“Relocation can be a good strategy,” says Cristina Guglielmetti, CFP and President of Future Perfect Planning. 

She notes, however, there are potential shortcomings depending on circumstances. 

“Possible drawbacks to consider are the taxes on the sale (a married couple would typically be able to exclude $500,000 of gain, but it’s worth consulting with a financial or tax advisor to get a sense of your particular situation),” she adds. 

The other factor is a little harder to quantify. “Also, the loss of community – if you’re moving to a new location where you don’t know anyone, losing your network might be hard!,” Guglielmetti said.

Indeed, relocating in retirement can lead to a sense of displacement. There are multiple non-financial personal factors that need to be considered before making a move, such as proximity to children and other family members, climate preferences, and access to cultural and/or sporting events. 

HELOC Play

If relocating doesn’t make sense, there are other ways to tap equity power. For instance, homeowners with at least 20 percent or more in equity in their home can take out a home equity line of credit (HELOC). This functions rather like a credit card than a lump-sum loan, providing a variable line of credit to draw upon over 5-10 years. 

It helps to have a strong credit score and a decent debt-to-income (DTI) ratio when applying. 

Most lenders will prefer that applicants have a steady income, which may be difficult for retirees who no longer earning a salary. Thus, planning in advance and taking out a HELOC loan in the years before leaving the workforce may be the optimal approach.

If handled with finesse, relocating for retirement can be a savvy move to boost retirement cash flow in one’s golden years. There are multiple factors to consider, chief among them being whether moving to a lower-cost locale is personally desirable. 

The key takeaway is that, even later in life, the roof over one’s head should not limit your retirement lifestyle, in fact, it should be a springboard to further potential wealth and enjoyment.