Do you daydream about moving to the beach when you think about retirement? Or does staying in your home with a lifetime of memories seem like a better fit?
No matter your plan, proactively planning for housing in retirement is important, as each choice has pros and cons.
Let’s review some retirement housing options and how they might impact you and your wallet.
To Sell or Not to Sell: “Rightsizing”
What you need from a house changes as you age. While raising a family, you may have prioritized a nice backyard, but as an empty nester, that yard might become more work and less enjoyable.
If your home no longer suits your needs (too much yard and not enough kitchen), it might be time to consider moving. You could call this downsizing, but we like the term “rightsizing.”
Rather than focusing on the size of your home, consider whether or not it will fit your lifestyle in this new season.
If selling makes sense for you, consider these pros and cons.
Pro #1: Potential For More Cash Flow Options
Assuming you’ve paid most of your mortgage by the time you retire, you could be in a good position to make money on the sale, even in today’s housing climate (which has cooled significantly due to rising interest rates).
You may not even need to worry about capital gains tax. The IRS states that a married couple filing jointly can avoid paying capital gains tax on the first $500,000 of profits if it’s their primary residence.
If you turn a profit, you could save by purchasing a smaller home with a more modest mortgage payment, lower property taxes, reduced utility bills, etc.
But selling your home isn’t cheap. You must consider realtor fees, minor home fixes, hiring movers, etc., which could eat into your net profits.
Remember to purchase or rent a home that’s the “right size” for you. When looking for another place, consider your needs now and in the future to find something to call “home” long-term.
Pro #2: Reduced Ongoing Maintenance
One of the downsides of a large home is the upkeep.
Being a homeowner comes with certain responsibilities like cleaning your gutters, keeping up with furnace and air conditioning, yard work, moving heavy objects, exertion from cleaning, etc. Those things may get more difficult as you age, so limiting them could be ideal.
Con #1: The Real Cost of Moving
While downsizing can be great, we can’t forget about market trends. With mortgage interest rates rising and home prices more expensive, it’s important to weigh cost and value to ensure you’re making a smart financial (and life) investment.
Additional expenses like realtor fees, cleaning costs, hiring movers, etc., can quickly add up.
Con #2: Leaving a Treasured Family Home
Where we live and make memories leaves a lasting impression on us.
One of the hardest parts of relocating could be leaving your home. If you’ve lived in your home for years, raised a family, and made lasting memories, the place will always have significance.
But those memories don’t exist in the vacuum of your home. If relocating is right for you, have peace knowing that you will continue to make lasting memories wherever you are.
“Let’s Stay Home”
Homebodies unite! Sometimes staying put is the best choice, also known as aging in place. And it’s a pretty popular decision as about 90% of seniors intend to remain in their current homes.
But there are benefits and challenges to this choice.
Pro #1: Comfort and Familiarity
Many things change as you age, but your home doesn’t have to be one of them.
One reason people stay is that they have a built-in community, which helps improve their mental and physical health.
Home is familiar and can make your daily life more peaceful, like having access to your favorite walking trail, awareness of the restaurant with the best apple pie, and knowing the route to the grocery store.
Leaving comfortable elements like your trusted neighbors, doctor, and go-to restaurants may impact your happiness and overall health.
Pro #2: Fertilize Your Roots And Watch Them Grow
If you decide to stay in your current home, you’ll be where you potentially raised a family, fell in love with your spouse, etc. For some, that is reason enough to stick around.
Or, part of your legacy includes giving your home to your child or grandchild. In that case, you may want to live and maintain the home until you pass it on.
Keep in mind that you may have to modify your home to suit your needs as you age. Renovations like adding a chair lift or widening doorways and hallways can cost anywhere from $10,000-$100,000.
Con #1: Roundabout Cash Flow Options
While you won’t cash a check from selling your home, aging in place doesn’t mean you completely miss out on your equity; you may simply need to be more creative to tap it.
For example, you could use a HELOC or home equity loan to fund home upgrades or supplement cash flow. A Home Equity Line of Credit allows you to leverage your home’s equity for renovations. The amount you can use depends on how much equity you have in your home, your outstanding mortgage balance, your ability to demonstrate repayment, and your credit score.
Another financing option many people ask about is a reverse mortgage.
But What About A Reverse Mortgage?
A reverse mortgage is a financial product for those at least 62 with significant equity in their home.
It allows you to borrow against the value of your home and receive funds as a lump sum, monthly payment, line of credit, or a combination.
You won’t make any loan payments throughout your life. Instead, payments are due if you pass away, move out of your house permanently (senior living facility, nursing home, etc.), or sell the house. Any proceeds first go toward paying off the loan, and leftover funds go to you or your estate.
If a large portion of your net worth is your home’s equity, a reverse mortgage can provide you with steady cash flow. But these loans come with thick red tape. While it’s an option, we find that it tends to come with more negatives than positives for most people. We can help you explore the most appropriate options for you.
Con #2: More Home To Maintain
Your family home may contain more space than you need—but you still need to take care of it.
Daily maintenance like cleaning the pool, mowing the lawn, and clearing the gutters will likely be harder with age, so you’ll need to enlist some help.
You may be able to rely on neighbors or family, but you also might require a professional. If so, consider how the cost of maintenance assistance could impact your cash flow plan.
Ultimately, you must ask yourself if your home still serves you and your needs. If your bedroom is up a flight of stairs or your kitchen isn’t handicap accessible, you may need to compare the costs of a new home vs. upgrading your current one.
Follow the Birds and Head South for the Winter
Snowbirding is appealing, but it can also be one of the more complex retirement housing options.
Pro #1: Two Living Locations
As the name implies, many snowbirds live in cooler climates. This option allows you to enjoy your home during the warmer months and head “south” when the cold front moves in. Snowbirding may also encourage more time to pursue your interests (like hitting the golf course), traveling, or finally learning to play the guitar.
If you plan to move out of state or an area you’re unfamiliar with, plan to visit the area during its most challenging time of year. For example, if you’re planning to move away from wet and snowy Washington for sunny Arizona, you may find that the hot summer is actually less tolerable than the snowy winter you’re used to. Especially if you’re far away from the grandkids!
We’ve seen people relocate to a new area only to move back a short time later. This, of course, is expensive and time-consuming, and it could be avoided by visiting your desired location prior to moving.
Pro #2: Travel And Form Intentional Communities
Retirement is synonymous with freedom; for you, that may mean experiencing many little corners of the world.
Living in multiple places can open your worldview and expose you to new people, customs, and communities.
Creating a rich community of people you like to spend time with in retirement is critical for your happiness and fulfillment. And when you snowbird, you’ll have the opportunity to do that in several places.
Plus, snowbirding doesn’t have to mean putting down roots. For you, snowbirding could be driving your camper south and traveling to different campsites during the winter.
Con #1: Snowbirding Can Be Expensive
Depending on your goals, snowbirding could mean owning or renting two homes, which you’ll need to include in your savings and spending plans.
You should factor in other expenses like:
- Cost of living
- State, local, and property taxes
- Travel, storage, and moving costs
- Entertainment expenses and dual memberships
Snowbirds must also be conscious of being more intentional about connecting with and forming communities. It can be easy to say, “we’ll be gone in 6 months, so we don’t have to go to the block party,” but it behooves you to foster those relationships.
Should I Stay or Should I Go? We’ll Help You Decide
Each individual’s retirement lifestyle plan is different, and where you live has a lot to do with how you spend your days. Be intentional about deciding what path works best for you, and don’t be afraid to ask for help.
Planning for your ideal retirement is so much more than the financial aspects. At TFS Advisors, we focus holistically on preparing for retirement so you can feel confident moving into your next season of life.
If you need help visualizing your ideal retirement or have questions about how to reach your retirement goals, please reach out to us today.