Does Your Home Still Work for You in Retirement?
Often I see retirees living in homes that no longer meet their needs but who refuse to consider a change. Your home should never be a source of distress for you and it should continue to reflect the life you wish to live. The problem is that the emotional attachment we have to our homes may cloud our ability to make a rational decision.
Richard and Marielle (I have changed their names for privacy) retired five years ago from their jobs in the area. Both had enjoyed successful careers, raised three children and lived an upscale lifestyle that included a large home in one of the better areas in New Jersey.
When they retired, the couple continued to live in their home. “We still had two teenagers that we had to support and we were convinced that our oldest was going to come back home,” said Marielle. “We could not conceive of selling a house that we loved, at least while our children might still need us.”
However, in the past five years, Richard and Marielle have become “empty nesters.” All of a sudden, the home that they so dearly loved became more of a burden than it did a source of comfort and pride.
“We found that we were travelling far more than we thought we would,” noted Richard. “That meant that we end up worrying about the house, about watering the plants and shoveling the walks while we are away. Besides, why would we need such a big house when our lifestyle had seen us try to simplify as many things as possible in our day-to-day lives?”
Recently, Richard and Marielle made the decision to sell the family home and to buy a condo in the same area. They held a big garage sale, which forced them to part with many prized possessions that they could no longer place in their new home. “It was time to shift gears,” said Marielle. “This was a new life for us and we both had to make an effort to move on.”
Home Is Where The Heart Is
We had previously talked about continuity theory. It says that “you are who you are” and that as you get older you tend to become even more so. When it comes to your home, there is a tendency to view where you live in emotional rather than utilitarian terms. For many Americans, taking a rational view of how well their homes will suit them in retirement is very difficult.
It is often said that your home is a reflection of who you are. If you have lived there for any length of time, it is also a storehouse for your memories. This is where your children grew up, where important family events took place. It has become part of you emotionally.
Is Your Home Your Retirement Plan?
American boomers have been the beneficiaries of the housing boom that occurred from 1996 to 2007. However, home ownership for the over-55 cohort has been falling. This has been blamed in part on higher divorce rates, as well as the trend by pre-retiring boomers to use money for lifestyle or retirement rather than paying down their mortgages.
The concern for the future is that there will also be many American boomers who will enter retirement either carrying a mortgage or having little equity in their homes. According to BMO/Harris Bank, close to 60% of retiring Americans expect to carry a mortgage into retirement. This will require them to spend higher amounts on their living arrangements, as more will become renters rather than owners.
A large number of Americans expect to use the equity in their homes to fund their retirement. the AARP suggests that nearly a quarter of Americans expect their homes to be their primary source of income when they leave the workforce and that as many as 35% to 40% of Americans may rely on their homes to fund retirement.
Does Your Home Meet Your Needs?
Many people on the verge of retirement will say that they are living in the same home they will live in throughout their retirement. While that makes sense today, will it make sense in the future?
If you look dispassionately at your home, would it still meet your needs in five years? What about 10 years and beyond?
Here are some things to consider:
- Ease and cost of maintenance
- Need for housekeeper, gardener, etc.
- Cost of heat, power, air conditioner, etc.
- Presence of stairs
- Handicap accessibility
- Proximity to social network
- Proximity to health care facilities
- Need for renovation
- Real estate market
- Access to recreation facilities
- Internet connection
Should You Downsize Or Move?
Where you live is certainly your choice, but the key determining factor is whether this new home fits your retirement lifestyle. The list above is a good one to use in assessing the suitability of a new home as an alternative to where you currently live.
Our advice is not to make a quick decision on moving soon after retirement. Give things time to settle and give yourself a chance to sample retirement life to decide what you really want.
Downsizing makes good sense for some people because it can be a financially sound and less stressful alternative to where you live now. Downsizing also gives you more control over your life; you may no longer have space for adult children to move back or room to deal with a steady stream of visitors at your new beach home!
If you have decided that you want to move, make that decision well in advance of retirement and then create the plans to make it happen on your time schedule. You also may want to “practice retirement” in your chosen place first if you intend to move to a new community. Pretend you are retired and use your vacation time to spend some time there.
A popular trend for American retirees is moving to a retirement community in the US or elsewhere. Some of these communities have tremendous social programs that will help you stay active and involved with new friends. There is a lot to be said for having a social network and meaningful, engaging activities as part of your retirement lifestyle.
Not everyone is comfortable with the close proximity to others or the feeling that you have sacrificed your independence. Others may feel that if they move into one of these communities they are throwing in the towel and admitting they are “old.”
While most villages are designed for 55-plus retirees, the average age of most communities is often considerably older, so you should check this out first to see if it works for you.
Things to check:
- Conformity rules that may limit some freedom to do what you want in “your” place (satellite dishes, outdoor heaters, ornaments, etc.)
- Security within the complex
- Homeowner association fees
- Maintenance quality for common areas, pools, etc.
- Policy regarding overnight guests, grandchildren, etc.
- Parking for visitors
- Clubhouse rental
- Access to recreational facilities (gyms, golf, pools)
What About a Vacation Home?
There are advantages and disadvantages to a vacation home in another part of the country. The advantage is that you can significantly cut down on vacation costs if you vacation at the country home instead. However, the disadvantage is that you may feel committed to going to your second home and miss some opportunities to go elsewhere. Also, a vacation home can significantly affect your annual budget.
Travel destinations are attractive places to move in retirement, but remember that your experience with the location may have been on a shorter vacation. If you are going to live there permanently, you should “practice retirement” first to ensure that the community offers you everything that you want. Some downsides to travel destinations are having lots of visitors (some you want and some you don’t), dealing with tourists, and higher prices.
A bigger issue is that the vacation home may be the dream of one person in the couple, while the partner goes along with the idea without really being enthusiastic. This can be overcome by making sure that you are both on the same page about what you both want. Think about taxes, insurance, maintenance, capital gains and estate planning issues.
Making Your Own Home Ready for Your Retirement
Now that you are moving into this next phase of life, you should take the opportunity to look at everything about your current home with fresh eyes. Remember that you are trying to take all of the stress out of your life in retirement and there may be some things about your home that could become irritants later.
Some examples are:
- Home improvement issues that you never seem to get to
- Rooms that just don’t work if you are both at home more
- A yard that requires more work than you are willing or able to keep up with
- A kitchen that is hard to work in efficiently
- Handicap requirements
- Guest rooms
If you are handy and can look at your home as a home improvement project, you can spend a lot of happy hours renovating. If this is not attractive to you, then you may have to pay someone else to do it. By the way, if you are a do-it-yourself individual, plan your projects ahead of time and try to avoid creating a constant state of construction in your home. That doesn’t make for a stress-free or relaxing retirement!
Clearing the Clutter
Have you noticed how much clutter accumulates in your home over a long period of time? It is natural to accumulate things, to the point where you no longer even look at them. For example, you have kept a lot of your old memories, children’s toys, old photos and a lot of things that you just can’t bring yourself to throw away. Take the time to go through everything and find ways to catalogue what you want and to send the rest to a charity or give it away.
For example, old photos can be transferred to a digital format and old music to your iPad. Those old family movies can also be transferred to DVD.
In making your home work for you in your retirement, it is a good idea to pick a day each year or each six months to go through your home and get rid of or file those things that are just taking up space. As a general rule of thumb, if you haven’t looked at or used something in the past year you should think about getting rid of it. A garage sale is a great way to clear out things that you no longer need, and generate some extra cash besides.
Joseph F. Falbo, CFP®, AIF®, CRC® is an independent LPL financial advisor that helps grow and preserve clients’ wealth using cutting edge, customized, and comprehensive strategies. With over two decades of experience, Joe helps clients to pursue and retain the lifestyle they want in retirement. To discuss your retirement goals or any financial topic you want, schedule a 20-minute complimentary call. To learn more about Joe, please visit falbowealth.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please consult your financial advisor regarding your specific situation.