HELOCs (Home Equity Lines of Credit) during the pre-retirement years may offer a final opportunity to strategically access home equity before income drops in retirement. With home equity at or near peak levels and final working years remaining to manage repayments, HELOCs can serve specific pre-retirement purposes:

• Final home improvements enabling aging in place

• Unexpected medical expenses before Medicare begins

• Bridge funding for phased retirement transitions

 

However, extreme caution is warranted: any HELOC balance carried into retirement becomes an obligation against reduced income, and the variable interest rate risk intensifies when income flexibility disappears.

 

Guidelines for pre-retirement HELOC use:

• Use HELOCs only for value-adding home improvements or genuine emergencies

• Establish a clear repayment timeline that eliminates the balance before retirement

• Avoid using home equity for lifestyle maintenance as income transitions

• Consider converting the HELOC to a fixed-rate loan as retirement approaches

 

Some pre-retirees face a dilemma: substantial home equity but insufficient liquid retirement savings.

 

Consider whether downsizing might be more appropriate than tapping equity—selling a larger home and moving to a smaller property could both:

• Provide a cash infusion to retirement savings

• Reduce ongoing expenses

 

Using HELOCs to delay Social Security claiming (allowing larger benefits) can be strategic if properly structured, but requires professional guidance.

 

Best practices:

• Enter retirement with minimal debt, including fully eliminating HELOC balances

• If carrying a HELOC balance at retirement, ensure retirement income comfortably covers minimum payments with a significant cushion for potential rate increases