on individual stocks, such as Mobil, where they’ve realized large gains. “We’re selling some of our stocks now, spreading the sales over several years to spread out the taxes, too,” says Bob. “The sales proceeds are being reinvested in municipal bonds so we’ll have much greater after-tax income.”
“Clients come to us in their early or mid-50s and say they want to retire in five years,” says Anderson. “When we look at the numbers, we see t
hey won’t be able to. You might have to work longer to increase the amount you can save up.” Indeed, a dose of realism is a vital ingredient in any recipe for a satisfying retirement.
RETIREMENT – ON THE HOUSE
Is your retirement plan coming up short? Don’t have enough time to build up a jumbo nest egg? The answer to your upcoming retirement might lie in one of your biggest investments to date: your home.
We’ve gathered up a number of ways you might use equity sunk into your home to cushion your retirement.
The simplest way to tap your home equity may be to sell your house. Under the new tax law, no tax will be due on profits up to $500,000 if you’re married (and filing a joint tax return) when you sell the house. Singles get a $250,000 capital gains exemption.
Suppose you have a $100,000 “basis” (the sum of past down payments and money spent on improvements) in your home. If you’re married, you can sell your house for any amount up to $600,000 and owe nothing to the IRS. Excess gains will be taxed at 20%–if you sold your house for $650,000, in this example, you’d owe $10,000 in tax and keep $640,000.
“After you sell your house, you can downsize by by moving into a smaller house or apartment,” says Dee Lee, a financial planner in Harvard, Massachusetts. “You probably won’t need as much space while you’re retired.”
Suppose you want to stay in your present house, yet tap your home equity. One option is to sell your house to another party, perhaps a frown son or daughter, and rent the house from the new owner. “Such a sale will be tax free in many case,” says Roger W. Lusby III, tax partner in the accounting firm Frazier & Deeter in Atlanta. “The new owners who rent the house to their parents may enjoy the tax benefits of owning investment property while the parents have cash and the opportunity to stay in their home. Be sure that a fair value is paid for the house–this avoids hard feelings with the other children as well as problems with the IRS.”
If you own a house that’s fully or nearly debt free, many banks will loan you money in a lump sum or as a stream of monthly income. In a typical arrangements, no payments are due until you cease to own and occupy the house; at that point, the principal and the accrued interest are due. Most reverse mortgage agreements stipulate that the loan balance