The value of our house has traditionally played a key role in retirement planning.  Cashing in that big gain would help bankroll our retirement lifestyle.  But the crash in home values has changed that for many people.  In fact, turned it upside down.

 A grim report from Deutsche bank says that the number of people with underwater mortgages (the house is worth less than the mortgage) will nearly double by 2011 to 48% of homeowners.  Those hardest hit are people who purchased between 2003 and 2006. 

If you find yourself in this position, here are four tips for dealing with lower home values and planning for retirement: 

1.  You only realize the loss if you sell.  So the longer you can stay in your current home, the better. Experts say 5 to 7 years may help you get back to an even position.  If you were thinking of selling because of issues around aging, there might be home modifications you can make that make it easier to stay in your home. The good news is that more of us say we want to stay in our home as we age.  So plan now on how to make that a possibility.   Or if assisted living or a continuing care community is right for you, find out what kinds of deals they are making for homeowners.  Many are cutting back on deposits or making special arrangements for those where the real estate market is slow.

 2.  If you were thinking about paying for long-term care services from gains from the sale of your home, now might be the time look at long-term care insurance.  The younger and healthier you are the easier it is to qualify and the less expensive the policy will be.  Make sure you look at a policy that includes care at home.

 3.  Don’t dip into the equity.  Over the past decade, many people used their house as a piggy-bank funding new cars, vacations, additions to the home, education and more.  First, distinguish the needs from wants.  Then look for other sources to fund the needs.

 4.  Review your financial plan and, if necessary, adjust your expectations about the value of your home if necessary.  Maybe it’s not as bad as you think.   And if you don’t have a financial plan, now’s a good time to get one.

 This article from Smart Money provides some good information about home values and what to watch for that can impact the value of your home