(MONEY Magazine) – Le Corbusier, France's foremost 20th-century architect, called a house ''a machine for living.'' For someone who bought one a decade or more ago, when inflation was bumping up prices at annual rates of 10% or more, a house has also been a machine for making money. As these lucky people approach retirement, they are discovering that their homes can be rich storehouses of cash that can be tapped when they need it. But these mother lodes aren't quite as rich as they were in the 1970s. Since 1980, house prices nationally have lagged inflation by a third of a percentage point a year. At best they are expected to beat the general inflation rate by a percentage point a year during the 1990s. ''You shouldn't count on your house to provide the same kind of appreciation as it did a decade ago,'' says Larry Carroll, a Charlotte, N.C. financial planner. The lesson for retirement planning today: tread cautiously and carry a ready calculator. By far the best way for house-rich retirees to extract cash from their real estate is by trading down -- selling their present houses for ones that cost less. This strategy lowers living expenses, converts some equity into a lump sum that can be invested for income, and leaves a house that can be passed on to heirs. Yet financially savvy as trading down may be, older adults often find it emotionally unacceptable. Surveys by the American Association of Retired Persons and others show that most older adults want to stay in their own homes and neighborhoods, close to friends and relatives. If you are in this immobile majority, you may be able to turn to a reverse mortgage, which lets you pull cash from your home while you still live in it. Consider the choices:

-- Trading Down

- Begin planning a trade-down far enough ahead so that you can be sure to squeeze the maximum return from your prime asset. Unloading your house when prices are escalating and sellers have the upper hand not only improves your odds of getting top dollar, but also means selling in six to seven weeks vs. as long as a year. Right now, for instance, is a difficult time to sell in most places in the U.S. While the pace of home sales can vary dramatically by city -- even by neighborhood -- the housing market overall has been sluggish this year. Sales by mid-summer were down 6.8% nationally compared with the same period in 1988. But with mortgage rates on a downward drift -- the rate on 30-year loans fell from 10.6% in June to 9.8% in August -- the balance of power already began to shift from buyers to sellers in August, when sales inched upward 3.3% from July. In addition to timing the sale of your old house correctly, thorough long- range planning requires you to research the living costs as well as recreational and entertainment opportunities of the place where you are thinking of resettling. ''People should spend 10 years actively planning where they're going to retire to,'' says Sanford Goodkin, national executive director for the accounting firm Peat Marwick in San Diego. ''The best way is to use vacation time to test locales where you might want to live.'' That approach led Fred McClure, 64, and his wife Dottie, 59, to sell their house in Charleston, W.Va. and move to Hilton Head Island, S.C. in 1987. The couple, both devoted golfers who play three to four times a week, had been spending their vacations at Hilton Head since 1979. They had even bought a trailer lot there to park a motor home that Fred, then general sales manager of Trojan Steel Co., used for business travel. When they received an unexpectedly large offer from a shopping mall developer for their Charleston home, Fred took early retirement. They bought a $250,000 three-bedroom house that overlooks the 15th green at the Country Club of Hilton Head. Says Fred: ''We fell in love with the island, and we knew we wanted to end up here.''

The McClures paid cash for their new house -- usually wise in a trade-down since it frees you from the yoke of carrying a mortgage on a reduced income. Also, unless your combined federal and state tax bracket is 33% or higher, allowing hefty deductions for mortgage interest payments, you might have to put the profit from selling your old house into risky, high-yield investments to produce income needed for mortgage payments. Says Goodkin: ''In the retirement stage of your life, you want predictability, not volatility.'' If you can spare part of your profit, you might consider taking back a mortgage from the buyer of your old house. ''This way you convert your house to both cash and income,'' says Peter Miller, a real estate broker in Silver Spring, Md. Miller recommends that you ask for at least a 20% down payment and even then advises you to consider such an arrangement only if the down payment exceeds your loan balance. Otherwise you would have to dip into savings to pay off your mortgage. And by charging a competitive interest rate -- 10% or so for a fixed-rate loan -- you earn more than you would on other low-risk investments. If you or your spouse is over 55, you can cut your tax bill by excluding from taxes as much as $125,000 of the gain from the sale of your house. To qualify for the one-time exclusion, you must have lived in the house as your principal residence for at least three of the preceding five years. Exception: you need have lived there a total of only one year if you spent the remaining four in a hospital or nursing home. If you are in the 28% tax bracket, the maximum exclusion would save you $35,000 in taxes. The best way to prosper in a trade-down is to sell in an expensive market and buy in a cheap one. Consider, for example, George Krozser, 62, a former budget analyst for GPU Nuclear Corp., a New Jersey electric utility company, and his wife Mary, 58. By selling their eight-room colonial in Morris Plains, N.J. for $280,000 in 1988, the couple were able to buy a half-acre lot and build a nine-room house on Fairfield Harbor near New Bern, N.C. for $183,000. The Krozsers indulged themselves -- they bought a used 25-foot, two-engine powerboat for $29,500 -- and invested the rest of their profit in a mix of conservative stocks and certificates of deposit. The income pays for the college education of their fifth child, Laura, 20. The move south also slashed the Krozsers' living costs. Property taxes on their New Jersey home were $3,600 a year vs. $845 in New Bern. The couple's auto insurance dropped from $900 to $500 a year. Says George: ''Overall, we've reduced our house and car expenses by more than 50%.'' To find a suitable locale for your retirement, you can consult Retirement Places Rated (Prentice Hall, $14.95), which gives the living costs -- including median house prices -- in 131 cities.

, -- Reverse Mortgages

For homeowners who prefer to stay put, the challenge is to find ways of mining the equity in a home while continuing to live in it. One increasingly popular strategy is the reverse mortgage loan, which usually pays you a fixed monthly sum but postpones repayment of both the principal and interest until you move or die, in which case your estate repays the loan. With some reverse mortgages you can also set up a line of credit that allows you to draw additional funds for emergencies or other unexpected expenses. Borrowers can either receive payments for the rest of their lives -- with what is known as a life tenure reverse mortgage -- or for a specific term, generally five to 20 years. A term loan is usually appropriate only if you plan to sell your house when the loan comes due, perhaps to move into a retirement community. Your monthly stipend from either kind of reverse mortgage depends on the amount of equity you have in your home and the loan's term -- the shorter the term, the higher your payments. With a life tenure loan, the payments are based on your life expectancy. For example, a 75-year-old who owns a $100,000 house with no mortgage could receive a monthly payment as high as $534 under the plan offered by Providential Home Income Plan of San Francisco. You should consider a reverse mortgage only if you expect to stay in your home at least five years. Such mortgages are also extremely expensive for small amounts of money -- say, less than $10,000. In addition to yearly interest -- typically 9.5% to 11.5% -- some lenders charge so-called risk premiums of 2% to 7% of the house's value; like points on a regular mortgage, the premiums are charged up front. Other lenders take all or part of any appreciation in the value of your house that occurs after signing for the loan. As a result, the effective interest rate on a small loan or on one that is repaid in a few years is downright usurious, in some cases well over 100% a year. In general, the longer the term of the loan and the less your home appreciates, the lower the effective interest rate you pay. For example, under Providential's program, at a 10% home-appreciation rate, the effective annual average interest rate is 18% on a 14-year loan. That rate drops to 7% if your house appreciates at just 5% and the loan term extends to 18 years. Geri Langsner, who retired four years ago as an advertising manager for a security-system manufacturer, took out a reverse mortgage on her home in a Los Angeles suburb that pays her $1,196 a month for life. The house cost her $26,900 25 years ago and is today valued by the lender at $395,000. The deal she cut with American Homestead, a Mount Laurel, N.J. lender that makes reverse mortgages in eight states, includes an equity-freeze feature that lets her keep 30% of the equity in her house, regardless of how long she lives. Says Langsner: ''I wanted to have something to fall back on in case I run into unexpected medical expenses.'' Though reverse mortgages are still relatively scarce -- only 4,000 or so have been made to date -- borrowers may soon have a wide assortment of lenders to choose from. In a demonstration program that will run to Sept. 30, 1991, the Federal Housing Administration is insuring 2,500 such loans made by private lenders. Unfortunately, demand has been so great that most lenders now have long waiting lists. That could change, however, since Representative James Florio of New Jersey has introduced a bill to allow the FHA to boost the number of insured loans to 25,000. (For the names of lenders in your area that plan to offer FHA-backed loans, call the FHA at 800-245-2691.) As more lenders offer such loans, Ken Scholen, director of the National Center for Home Equity Conversion in Madison, Wis., predicts that competition among lenders will ''eventually drive rates on FHA-backed reverse mortgages below those on conventional mortgages.''

You might find that you are better off with a reverse mortgage that is not insured by the FHA. Reason: the maximum monthly payments on FHA reverse mortgages are linked to that agency's mortgage ceilings, which typically range from $67,500 to $101,250. As a result, the top payment on a life tenure reverse mortgage at 10% for a 75-year-old ranges from $240 to $360. Homeowners whose equity exceeds the FHA ceilings may be better off with the bigger payments from non-FHA mortgages. For more information on how to evaluate reverse mortgages, write for AARP's free booklet Home Made Money (AARP-HEIC, 1909 K St. N.W., Washington, D.C. 20049) or the National Center for Home Equity Conversion's A Financial Guide to Reverse Mortgages (348 W. Main, Marshall, Minn. 56258; $35).