Retiring on Social Security Only: Should You Sell Your Home for Cash?

According to the Social Security Administration , the average retired worker received about $1,917 in Social Security benefits in May — that’s around $23,000 a year. For those whose primary or only source of retirement income is Social Security, this can lead to some significant financial constraints.

Find Out: 4 Expenses Retirees Regret Keeping in Their Budgets, According to Experts

Learn More: The Surprising Way You Can Get Guaranteed Retirement Income for Life

If you’re planning to retire — or even if you’ve already retired — and you own your home, you might be thinking about selling it for cash. Depending on what it’s worth, you could end up with a nice lump sum to offset any financial burdens later in your life.

But the question is: Should you? Here are some things to ask yourself before making any major decisions.

Also see where boomers are selling their homes.

Sponsored: Protect Your Wealth With A Gold IRA. Take advantage of the timeless appeal of gold in a Gold IRA recommended by Sean Hannity.

What’s Your Financial Situation Look Like?

Deciding to sell or keep your home in retirement is a personal decision, one that’s largely based on your financial situation.

“If their Social Security benefits are insufficient to cover their monthly expenses and they lack other liquid assets, selling their home for cash could be a viable option. This can free up substantial capital, especially if they have significant equity in their home,” said Justin Haywood, president and co-founder of Haywood Wealth Management .

Haywood suggested assessing your overall financial health, monthly expenses — including debts — and whether or not you expect to have other income sources in the future. Then, weigh that against your Social Security benefits and determine whether or not you have enough money coming in to cover your needs.

Check Out: Here’s How Much You Need Saved To Retire Rich in America’s Largest Cities

How Much Home Equity Do You Have?

A recent report found that the average mortgage-holding homeowner has $178,000 in tappable home equity. But if you’ve paid off your property, you could have significantly more than that.

“Selling the home can provide a lump sum of cash that can be used to cover living expenses, pay off debt or invest in income-generating assets,” Haywood said. “Calculate the amount of equity in the home.”

If you have a lot of equity and you’re looking for some financial flexibility, selling could make sense. But if you don’t have much equity, or it’s not enough to cover your financial needs, you may need to consider a different option.

Where Are You Going To Live?

Before you sell, make sure you have a solid plan for where you’re going to go.

“After selling their home, retirees will need to find a new place to live,” Haywood pointed out. “This often means renting or buying another home, which could introduce new monthly expenses that were previously non-existent, such as rent or a new mortgage payment.”

Take some time to run some numbers and find out what your new living arrangements are going to cost. You might find that it’s not worth the move.

“Everyone needs a place to live. Selling the home to gain access to cash doesn’t seem to solve the problem,” said Chuck Czajka, certified Social Security claiming strategist (CSSCS) and founder of Macro Money Concepts . “Unless they have another option for a place to live, my professional opinion is no, you shouldn’t sell your home for cash if your main income in retirement is Social Security.”

Is a Reverse Mortgage Viable?

You might have other options other than outright selling your home, like a reverse mortgage. It all comes down to your goals and, again, your financial needs.

“I think first and foremost would be to determine a budget of some sort. How much does a person need to cover fixed expenses?” Czajka said. “Second, if the home has good equity, which is why I think one would look to sell, it’s very possible that a reverse mortgage could solve the problem. The ability to take out equity to subsidize income need, while being able to stay in your home, might make sense.”

Are You Aware of the Overarching Implications?

Selling your home might put more money into your bank account, but it comes with some tax implications.

“When you’re selling your home, you have to take several factors into account, regardless of your age,” said Scott Lieberman, founder of Touchdown Money . “But when you’re retired and living on Social Security, there are even more factors at play. That’s because retirees have the concern of selling the house without damaging their Social Security income with an unexpected tax bill.

“For example, you can be subject to a capital gains tax depending on how long you’ve owned your home. However, if you’ve used the home as your primary residence for at least 40% of the past five years, you’re usually eligible for tax exemptions. Your benefits can also be taxed if you earn income from the sale. In the current housing market, there’s a very good chance of that.”

If you’re not prepared, selling your home also could affect your Social Security benefits.

“If you earn too much income, it could restrict your eligibility for assistance programs,” Lieberman said. “Before you make the sale, consult an accountant and learn what you could be doing to your finances.”

Are You Emotionally Prepared?

The decision to sell your home or not isn’t all about finances and taxes, though that’s definitely part of it. The decision also could affect your emotional well-being.

“Homeownership often has sentimental value,” Haywood said. “The decision to sell should also take into account personal and emotional factors, not just financial ones.”

Think about your current lifestyle, neighborhood and community. If you’re well established where you are and can make the financial side of things work, you might be better off staying put. And if you intend to leave your property to your descendants, selling could disrupt those plans.

Weigh the pros and cons alongside your needs and goals. If you’re still not sure, consider speaking with a professional or, at the very least, chatting with someone you trust to give you unbiased advice.

This article originally appeared on GOBankingRates.com : Retiring on Social Security Only: Should You Sell Your Home for Cash?