Other Ways to Increase Cash Flow
By Cameron Huddleston, Contributing Editor, Kiplinger.com
October 23, 2003
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Retirees who need money but don't want to work do have other cash-generating options. Here are a few ways to increase your cash flow without returning to the daily grind.
Reverse mortgage. If you're at least 62 and have paid off most of your mortgage, you can qualify to get a mortgage that pays you. A reverse mortgage lets you convert the equity in your home into a stream of income. The amount you get depends on your age, your home's value and interest rates at the time the loan is granted.
A reverse mortgage is a loan, but it's due only when you sell the house, move out of it permanently or die. You'll never owe more than the value of the house. And the payments you get from a reverse mortgage -- lump sum, monthly payments or a credit line -- are tax-free. Plus, there are no income requirements for a reverse mortgage, and credit history is not a factor.
Because interest rates have been low and home values have been rising, reverse mortgages have been growing in popularity recently. They're not for everyone, though. Lenders may charge hefty fees. If you're planning to move in a couple of years, the high up-front costs wouldn't make a reverse mortgage worthwhile. Even if you will spend the rest of your life in your home, you shouldn't jump into a reverse mortgage without first considering other options, such as selling your house and moving to something less expensive.
Downsize your house. Some retirees are taking advantage of the recent boom in the housing market by selling their houses that have appreciated in value, buying or renting a smaller place, and banking the profits. Up to $250,000 of home-sale profit is tax-free if you're single -- $500,000 if you're married -- as long as you've lived in the house for two of the five years before the sale. Tax-free gains can be invested in annuities and generate a steady stream of income for life.
A smaller house also requires less money to heat, cool and maintain.
Consider another state. In addition to federal income taxes retirees also should consider the affects of sales taxes, property taxes, state income taxes and perhaps even luxury taxes. Choosing a state based on its overall tax burden may seem a bit extreme, but if you are looking for a new setting to settle into retirement taxes should be a consideration. For more information, see Where You Stay = What You Pay.
Spend less. Retirees could spend less to stretch their existing dollars further. Financial planner Michael Furois says cut back on the big items, such as vacations or new car purchases. This saving strategy will pay off more than small penny-pinching moves. And consider refinancing your home if you're still paying a high interest rate. You might be able to save a couple hundred dollars a month on your mortgage payment. For more ideas on how to tighten your belt, see Keep More Cash.
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