Want to Add $100K to Your Retirement? Vanguard Recommends This Strategy

retire and relocate

Approximately 80% of all Americans aged 60 and older are homeowners, and housing wealth accounts for about 48% of the median wealth of that group. As retirees near large cities, and strong housing markets, start retiring, they realize they can unlock this wealth by selling their home and relocating to a more affordable area. This retire-and-relocate strategy allowed homeowners to unlock a median figure of $99,019 from their homes in 2019 and the amount went up to $347,000 for the top 10% of homeowners who relocated to less expensive housing markets. Here’s how it works and the pros of cons of relying on this strategy for your retirement.

Consider working with a financial advisor to help you with your retirement needs.

How Retirees Are Tapping Into Housing Wealth By Relocating

As retirees finish working, they no longer need to remain within a close proximity to large cities like New York, Boston or Los Angeles. Instead, they are considering moves to more affordable states that are more retirement focused like Florida or Wyoming. This not only gives them a community of retirees to socialize with but it also is opening up a large chunk of their wealth through the sale of their home.

Vanguard recently conducted an analysis of this group to determine how much money retirees are unlocking by selling and relocating. As of 2019, the median homeowner who had reached the age of 60 and used this technique accessed approximately $99,000 in home equity. The top 10th percentile unlocked a median of $337,000.

The average homeowner who is at least 60 years old has about $223,000 of retirement savings in their financial accounts. That, alone, isn’t considered to be enough to retire on so many are starting to plan for the use of their home equity as part of their retirement plan.

The example provided by Vanguard looks at a woman who purchased a home near Boston in the 1990s for $170,000. That home would now have an approximate value of $500,000. After selling the home, relocating and buying a smaller home in her new location, she’s able to unlock about $200,000 on the capital gains from selling her house.

The key to unlocking these funds is that she must move to a location with a much more affordable housing market so that she doesn’t have to pay rent. This may not be an option for some who have family obligations tying them to their current location. However, for many this is quickly becoming a way to nearly double their retirement funds.

Two Types of Retirement Relocators

There are two types of retirement relocators that can find success with this strategy. The first is those who move from a booming housing market (lottery winners) and those who move to a low-growth housing market (bargain hunters). Each strategy creates different values for the homeowner but it also opens up different opportunities.

1. Lottery Winners

The “lottery winners” are those who moved from a housing market that boomed at the right time for them. They were able to see strong growth in home values within their area for a long period of time while they owned their home. Hitting the market just right, they were able to create a large amount of home equity just for being in the right place at the right time.

Some homeowners may have predicted housing bursts like this, but in reality, most just happen to get lucky with the housing boom in their area, thus the lottery-related name. Due to their large home equity growth, this group can typically move to pretty much any market that hasn’t seen similar growth patterns and end up unlocking a substantial amount of money for retirement.

2. Bargain Hunters

Many people fall into the second category, called “bargain hunters” which means they must do a bit more work to unlock their equity. This group typically sees steady growth in the value of their home while they own it instead of seeing large growth patterns over a few years. This means they must be more creative to unlock some wealth from their home.

The strategy here is to find a bargain in the housing market somewhere in the country that allows them to buy a new home for substantially less than they sell their current house for. This may not unlock the same desired retirement locations, but it can still be a viable way to greatly increase the amount of money they have saved for retirement.

Pros and Cons of Counting on Relocation for Retirement Income

Unlocking money from selling your home and relocating can be beneficial for most people, but there are pros and cons to actually counting on this money in order to retire. It’s important to understand both sides as you’re planning for retirement early on so that you can make the right choices for you before it’s too late.

Pros

More Money: You can add a substantial percentage to your retirement funds by counting on and executing this strategy.
You Can Retire In Paradise: An option to this strategy is retiring either in a sunnier location state-side or even moving overseas to a tropical paradise with a lower cost of living.
More Accurate Planning: Relying on this strategy provides a more accurate picture of your retirement funds so you can better plan for the income you’ll have in retirement.

Cons

The Market Can Change Unexpectedly: The housing market in your current area can change over time. This could lead to a lower potential return and less money than you project to have when retirement comes. Housing markets can be less predictable, over time, than the stock market.
Less Liquid: If you have a substantial part of your retirement tied up into a physical asset then you aren’t able to access that money whenever you want. It also leaves you at the mercy of the market until you actually close on the sale of your home.
Relocation Is Required: In order for this strategy to work, you must relocate when you sell your home. This might not be the desire or even an option for many people with family or health situations out of their control.

A financial advisor can help you project various scenarios and weigh your options. Consider matching with a fiduciary advisor for free.

The Bottom Line

A growing number of homeowners are relying on a retire-and-relocate strategy to greatly strengthen their retirement finances. By selling their home in a strong housing market and relocating to a weaker one, homeowners that retire can net the difference and add it to their retirement funds.

This doesn’t come without risk, though, as the market can change. For many it can help increase their total income in retirement but it might be best to consider it additional income instead of relying on it as money that is needed for the retirement you want.

Tips for Retirement

When considering your retirement options, it might be best to consult with a professional. Financial advisors can help you make a retirement plan and help you create income streams for your golden years. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
As you’re thinking about retirement, it’s best to know how much you’re going to need to live how you desire. Try SmartAsset’s free retirement calculator to do just that.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.