If you move forward with home equity be very smart and be very careful.

When your retirement years come along your home equity can be used but it is wise to approach that option cautiously, according to Forbes in “7 Ways to Use Your Home Equity for Retirement Income.”

Late starters to retirement need to think a little differently than others. If you must do it, your home can be leveraged to help your retirement income picture.

Remember that your home is treated as a special asset by the IRS. If you are married filing jointly, you can exclude up to $500,000 in gains from income taxes on the sale of your residence. If you are single and file independently, you can exclude up to $250,000 in gains.

Therefore, you can buy a house, live in it, sell it, and pay no taxes for the first $500,000. You have to own the home and have lived there for two out of the last five years. If you bought a home for $250,000, lived there for at least 24 months out of a five-year period and sold it for $750,000, your $500,000 gain would be income tax free. That doesn't always happen, but it would be a great deal if it did!

Here's how to turn home equity into retirement income:

Downsize and invest the proceeds. Sell your home when you retire and purchase something that costs significantly less. Remember that everything gets smaller when the house gets smaller: taxes, the cost of maintenance and utilities. You can use more of the proceeds to invest and rent a home.

Sell and move to a less expensive community. Don't just look at lists for places where taxes are less, although that is a factor. Find a place where the cost of living is cheap—like some college towns, which offer a variety of activities and, if the college has a top-ranked medical school, excellent health care. Do your homework and see what works for you and your family. If you move far away, remember to add in travel costs.

Become an ex-pat. Some people retire outside of the U.S., where the dollar stretches even further. Costa Rica and Portugal are two places that retirees favor for low cost of living and affordable quality medical care.

Sell your home, live on the proceeds and get a property management job that includes low or no rent. You'll need a certain skill set to take on this job, but if are able and willing to provide building maintenance services, you could find yourself living rent-free.

Sell the house and move in with the kids. Families do this all over the world, and for many, it's a way to keep the family closer. It can work, as long as everyone agrees to it. Parents get an extra set of hands with the children, children get to know their grandparents far better than a once-a-year visit to Florida and travel costs are reduced or eliminated.

Rent out part of your house or do a home share. If the layout works, you could take in a roommate or a boarder. You could move into a smaller part of the house and let the renter have the larger space. You could also rent to someone who has retired and doesn't want to live in an apartment. Technology can expand your reach or check into sites geared to seniors.

Stay in the house and take out a reverse mortgage. A reverse mortgage lets you tap the equity of your home, either as a lump sum or a line of credit, while still owning your home. You must be over age 62, and you still have to pay taxes and maintain the house, including paying for homeowner's insurance. When you sell the house, you or your heirs pay off the loan and any remaining equity is yours to keep or goes to your heirs. There are closing costs, which are not cheap. However, this is a way to stay in your own home.  Click here for a comprehensive guide to reverse mortgages - what they are, who they're best suited for, and their pros and cons.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and your retirement options.

Reference: Forbes (Sep. 19, 2018) “7 Ways to Use Your Home Equity for Retirement Income”