There is nothing more terrifying than the prospect of running out of money late in life. Many elderly go without in order to avoid this situation and make their savings last as long as possible. Retirees living in their own homes are often asset rich yet cash poor. When the cash runs out, there are a number of options available to avoid living in poverty:
Sell the house and buy a cheaper one to free up cash. Often this is not possible as the house is already at the low end of the market and by the time selling and moving expenses are taken into account, there may be insufficient cash freed up. Elderly people are often very reluctant to give up a comfortable home.
Sell the house and rent. While this can result in a big amount of cash becoming available in the short term, rent is a huge expense which increases over time and quickly consumes the cash. The loss of certainty of occupancy can be a problem.
Borrow money from children. This can be fraught with difficulty if children are not able to contribute equally or if the loan is not properly documented.
Borrow from a bank. Banks will sometimes lend on an ‘interest only’ basis, however, that means having to meet the extra cost of interest payments each month.
Take out a home equity loan. This is usually a last resort option due to the cost of compound interest, but it can be a very effective solution for certain borrowers, especially those who are not concerned about leaving money for children.
While none of these options are ideal, they may be better than the alternative of living a miserable life. It is a matter of considering the positive and negative aspects and selecting the most beneficial option.
