Four Questions to Ask Before Buying Your Retirement HomeSubmitted by Schultz Financial on January 31st, 2017
Ah. The retirement home. Every one of us has our own idea of what we would like to have in our perfect retirement house.
Unfortunately, what we want and what we should have are often dramatically different, if not diametrically opposed. We need to think about it, not as the 50- or 60-something we are today, but in the context of where we will be 10, 20, 30 years down the road.
This requires a bit of imagination, as well as some hard-headed proactive thinking. So what are the things that people approaching retirement should consider when buying their retirement home?
Is moving really the best choice?
The logical first consideration for anyone thinking about their retirement home should be this:
If your house is paid for, you have family and friends close by, and are comfortable, maybe you are already in the perfect “retirement home” and don’t even know it.
Let’s say you live in Orange County, CA and all your relatives and friends are there. Maybe moving to Las Vegas isn’t the best idea.
“Hey, it’s only a 45 minute flight!” sounds good, but a 45 minute flight still requires foresight, planning, and budgeting. Not to mention, the travel day logistics of a 45 minute flight are much more involved than even a 4-hour drive.
In other words, you’re not as close as you think.
Is it better to think of your current domicile as your retirement “base,” and that travelling might be a better option?
Don’t dismiss your current situation out-of-hand.
Should I buy early?
If you believe “a rolling stone gathers no moss,” and know that you’ll be ready for new digs to go along with the new chapter in your life, then think about buying sooner rather than later.
A great way to approach the “buying early” strategy is to use the home as a vacation home for a few years. There are a number of advantages of buying early and using it as a vacation home:
- You might find that for unforeseen reasons, a particular home might not fit your long-term needs
- It’s easier to finance a mortgage when you have a job. It also means better cash flow for any needed renovations and repairs
- Spending extended time in the house means you’ll have a better idea of the real day-to-day, month-to-month expenses of the home. (lawn care and pool maintenance might impose a greater burden than you thought, for example)
- Living like a local means you will have a better idea of what it's like to be there year-round.
To use our example above, Vegas might sound great and check all of the boxes, but once you’re there you might find the tourists and the casino culture quickly lose their allure.
The only way you’d know is to actually live there.
Should we finance or pay cash for the house?
At a certain point, nobody wants to have a mortgage. The perception is that a mortgage limits your flexibility and adds an expense many retirees would prefer to do without.
Here, it’s important to meet with your financial advisor and take a look at the totality of your retirement assets. Just because you can buy your house with cash doesn’t mean you should. The last thing you want is to be “cash poor, land rich.”
Keep in mind, you can always rent the house to help defray the mortgage costs until you retire and sell your existing home.
Remember that in retirement cash equals flexibility.
How do we know which home is right for us?
There are a couple of things that retirement home buyers need to consider, in terms of location and function:
- Transportation. While self-driving cars might be the future, there’s an equally good chance we’ll all still be piloting our own cars 30 years from now. What that means is you can’t assume you’ll still be able to drive when you are 80 or 90 years old.
As such, you need to prepare for that contingency: is there easily-available public transportation nearby? Reliable ride sharing services (like Uber and Lyft). Is it a walkable neighborhood, with grocery, shopping, and the like?
Again, be proactive in your thinking – plan for contingencies.
- Location. It’s the Number One rule of real estate. Is the home close to the things you want to be near, or do cost limitations force you a bit farther out?
If so, see the bullet point above.
- Type of Housing. House or condo? Multi-level or ranch? Elevator or stairs?
While these seem to be the easiest decisions to make, they are fraught with unknowns.
For example, after living in a 2-story house with a big yard for 40 years, a condo might sound like the perfect way to simplify and downsize. But what happens if after 3 months, you truly miss sitting on your deck and having your coffee in the morning?
Or you’ve lived in the city your whole life, and after a month in the country you’re bored out of your mind?
All of these are important reasons why those who are actively considering their post-retirement living arrangements should strongly consider buying that property sooner rather than later.
As noted above, there’s a lot to consider, so meet with your Certified Financial Planner™ to come up with a strategy.