Deciding where to live is hard for anyone, but for retirees, it can be especially difficult. How can you make the right decision? Should you keep the family home, downsize to a smaller residence, or drop the cost, worry, and upkeep that accompanies home ownership?
This is one of the most frequent topics clients bring us. It’s especially challenging because selling a house is an emotional decision, not just a financial one. But it needs to be addressed. As you can see in Figure 1, the aging population is expected to increase dramatically over the next 20 years, leaving many facing this question.
There’s no right answer for everyone. There’s likely a “right” answer for you, but it can be hard to discern.
Ask yourself these questions:
- What is your retirement budget?
- Is the home a potential investment or another cost of living?
- Can your budget handle the risks and unknown costs ownership carries?
Budget, Financial Profile, Retirement Plan
Conduct a full “financial physical.” Sit down with your advisor and examine your savings, current financial profile and the long-term plan you have laid out for retirement. Look at your overall financial situation, risk profile, liquidity needs and other factors such as rates and inflation protection before making this decision. If there is still a mortgage on your home, that could turn into an unwanted burden down the line.
Tax Considerations and Risks
Remember, there are tax deductions for owning a home and none for renting.
That’s not to say owning a home is always better than renting. Home ownership carries multiple risks: fluctuations in market value, expected/unexpected maintenance expenses and insurance deductibles equal huge additional costs.
If you’re going to buy a house in retirement, make sure you find the right property with the right mortgage or rental rate that fits your budget. Keep inflation in mind when it comes to rent, taxes, insurance rates, etc.
Could you pay off your mortgage by the time you retire? If so, do it, as a mortgage can become quite bothersome later on.
If you’re buying, how long do you plan to stay in this new place? The rest of your life? Since retirement periods are lasting longer these days, you may jump multiple times between owning and renting in the future, and there is a certain point when it becomes more expensive to rent.
Risks to Consider
If a your health or your spouse’s health fails, you may need to unexpectedly move into assisted living or a skilled nursing facility. By age 85, more than two-thirds of individuals have some type of disability no matter their race/ethnicity, income, or housing tenure.
In a down market, it can be hard to suddenly sell a home.
Analyze your emotional attitude toward change before deciding to sell their home. Some people deal with change better than others, not to mention the emotional discomfort some feel living in a rented space. The emotional toll of living in “someone else’s place” is not worth it for these people.
On the other hand, seniors who can no longer drive or travel easily may feel isolated stuck at home all day and cherish the companionship that comes with living in an independent or assisted living community.
Do you want freedom from responsibility? Do you want to travel more? Renting can provide that freedom, but owning can provide more security. Renters are subject to the whims of their landlord and a change of ownership could mean they have to clear out quickly. If that doesn’t worry you too much, you might be fine renting.
Finances could be the most difficult aspect. The stress of managing mortgage payments, property tax payments, insurance payments, etc., could take a toll on your quality of life, especially if you want to travel frequently to be near family.
Source: Notes: JCHS tabulations of US Census Bureau, 2012 American Community Survey.
Deciding where to live in retirement can be tough. Sit down with an advisor and consider all the angles before making a decision. Contact McLean today.
McLean Asset Management Corporation (MAMC) is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.
The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.