Transforming home equity into a better retirement

Imagine you are in your 60s, looking over your shoulder for signs that your job will soon disappear. You don't have a pension. You don't have much money in your 401(k) plan. Indeed, you may have next to nothing. What you do have is your home, one you have lived in for a long time - long enough to have paid off the mortgage.

For millions of people, this situation requires no imagination. It is almost exactly what they are facing. Is there a way to turn it around?

I believe there is. It involves reimagining shelter. It means transforming your basic circumstances. Consider Bill and Ann, a couple who own a home valued at $208,000, the recent median sales price for existing homes. They own it free and clear.

But they're both 65 and have just lost their jobs. Worse, a previous period of unemployment forced them to draw down most of the money in their 401(k) plans. Now, their largest resource is their Social Security checks. As average workers, that's $1,215 a month for each, a total of $2,430 a month.

Now that they are involuntarily retired, the house they love has become a cost burden. Taxes, insurance, repairs, services and utilities cost them about $8,400 a year. Add their Medicare Part B premium of $104.90 a month, each, and only $1,520 a month remains to cover the cost of everything else.

What can they do?

Not a palace

Here's the transformation: They can sell their house and move to a resident-owned manufactured-home community. Doing so will provide them a two-bedroom, two-bath home with 1,000 to 1,200 square feet.

It won't be a palace, but palaces aren't good designs for aging in place, anyway. Homeowner association dues cover outdoor work such as lawn mowing. And they will have neighbors watching out for them as they get older.

They will net about $185,000 after the costs of selling their house and moving. Next, they buy a manufactured home for $65,000 to $70,000 - a common price level for manufactured-home resales in resident-owned communities.

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Transforming home equity into a better retirement