Pre-Retirement HELOC ??

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baldtaxguy
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Joined: Sun Jul 04, 2021 7:26 am

Pre-Retirement HELOC ??

Post by baldtaxguy »

I admit I did not search as to whether this topic has been covered….

…but I am 3 years out from retirement with two homes, one of which will likely be sold soon after retirement.

Destination home for retirement (Home 1) is currently valued at $920k and no mortgage.

Question for those close to retirement, or recently retired, do/did you see any value in obtaining a HELOC just as a contingency? I do not foresee a need to tap into it other than for emergency purposes. The proceeds of Home 2 around my retirement time frame will likely suffice for any thought of a Home 3 down the road….

Welcome any thoughts and considerations on whether obtaining a HELOC before the paychecks stop and that extends into retirement is something to further explore.

Thx in advance.
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Watty
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Re: Pre-Retirement HELOC ??

Post by Watty »

baldtaxguy wrote: Wed May 25, 2022 5:09 pm Question for those close to retirement, or recently retired, do/did you see any value in obtaining a HELOC just as a contingency?
I retired just before I turned 59 so had an affordable care act health plan through healthcare.gov.

By using a home equity line of credit I was able to manage my income to get a large subsidy. For example instead of making IRA withdrawals I could use my HELOC to pay my living expenses for the last few months of the year to keep my income low to qualify for the subsidy and to get a larger one. I could then pay the HELOC off in January. My interest rate was around 3% so the interest on a few months balance was minimal.

That took a lot of juggling and it became harder to keep my income low because of the January IRA withdrawals to pay off the HELOC.

The income cliff was suspended for a few years because of the pandemic but in might be back in effect by the time you retire. In addition to the cliff it is important to understand the details of how the amount of the subsidy is calculated. There are also lots of special rules for real low income people. You need to read the details to understand it but for me I think the subsidy was reduced by something like 8.5% of my marginal taxable income. For example if I could keep my taxable income $10K lower by using a HELOC instead of making IRA withdrawals then my subsidy would be $850 larger. That was a lot more than any interest I would pay on the HELOC.

The details changed a bit each year so you really need to dig in to the specific details for you situation but this helped me a lot.

Even if you do not want to try to manage your income like that having the HELOC could be handy if you have some large unexpected expense like a new roof that you might need to make an taxable IRA withdrawal for.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: Pre-Retirement HELOC ??

Post by exodusNH »

baldtaxguy wrote: Wed May 25, 2022 5:09 pm I admit I did not search as to whether this topic has been covered….

…but I am 3 years out from retirement with two homes, one of which will likely be sold soon after retirement.

Destination home for retirement (Home 1) is currently valued at $920k and no mortgage.

Question for those close to retirement, or recently retired, do/did you see any value in obtaining a HELOC just as a contingency? I do not foresee a need to tap into it other than for emergency purposes. The proceeds of Home 2 around my retirement time frame will likely suffice for any thought of a Home 3 down the road….

Welcome any thoughts and considerations on whether obtaining a HELOC before the paychecks stop and that extends into retirement is something to further explore.

Thx in advance.
I don't know whether it's a good idea -- not commenting on that.

Most (all?) HELOCs have a limited draw period -- mine is 10 years. After that, you can no longer pull more money out. If you have an existing balance, it converts to a fully amortized loan for another 5-20 years. It's not something that you're going to have open for your entire retirement.
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