Planning to move in retirement can be exciting. Will you live closer to the golf course or make the beach your backyard? Maybe it’s more your speed to move from your quiet suburbs back to the big city. That’s what’s so great about retirement — it’s your chance to relax and do whatever makes you happy.
But there are some watch-outs as you find your new location. We asked some experts about the top real estate mistakes retirees make so that you can avoid them — and get to that thing that makes you happy.
AUTOMATICALLY ASSUMING THAT PAYING CASH IS THE RIGHT MOVE
It’s typical for many buyers nearing retirement to take the full proceeds from the sale of their existing home and pay cash for their next residence, says Tom Furey, co-founder and senior vice president of lending at Neat Capital in Boulder, Colorado. While this could be a wise financial decision for some, others may find themselves in a situation where they are “house rich,” but “cash poor,” and giving up future earnings to boot.
“The key is to understand the expected rate of return on your invested assets and compare it with the interest rate you would be paying on the new mortgage,” he says. “If you believe your interest/dividend income will significantly exceed the mortgage interest you would be paying, that spread between what you are earning on your investments and what you are paying in mortgage interest will create incremental wealth over time and improve your annual cash flow.” In addition, the mortgage might come with tax advantages that you don’t want to give up.
The Fix: Make your homebuying decision in the context of a broader financial plan. A financial advisor can help you see how all the pieces of your plan — including equity in your home — fit together.
DOWNSIZING TOO SOON
Many pre-retirees make the decision to move right after their last child has left the nest, says Jeff Checko, a real estate broker with Ashton Real Estate Group of Re/Max Advantage in Nashville, Tennessee. “The home feels too big, the yard work becomes daunting and they think they are ready for fewer rooms and a container garden rather than a big lawn to mow,” he says. But moving can leave you isolated from friends and family just when you need them most — as you begin this new chapter in your lives. You also might realize a smaller townhouse or condo doesn’t accommodate the growth of your children’s families, Checko points out.
“A sudden change, like children leaving the home or transitioning from a full-time job to a more leisurely schedule, requires a bit of a grieving process,” he says. Making a decision too soon can lead to regrets.
The Fix: Even though it’s tempting to change everything at once, the best strategy can be to wait until you’re sure that a new lifestyle is what you want. You might even consider renting in your proposed new location to try it out before you make any permanent decisions, suggests Dolly Hertz, associate real estate broker with Engel & Volkers in New York City.
UNDERESTIMATING FUTURE COSTS
Say you do decide to pay for your home with cash, which you believe should remove the line item for “housing” in your new budget. Or, you move to a spendy area and end up buying right up to the monthly mortgage payment that you’re comfortable with. In either case, it’s easy to forget that you’ll also need money each year for taxes, homeowner’s dues or condo fees and maintenance costs. And while all homeowners have these costs to contend with, retirees tend to underestimate them, Hertz says.
That’s because people usually buy a home based on their current income and don’t consider that their income may go down, while costs can rise, she says. “As we live longer, we might eventually have 20, 30 or more non-working years. Further, many retirees don’t have a plan for continuing to afford the new residence in the event their spouse passes away.”
The Fix: This is another consideration where a financial advisor can help you put together a picture of the realities of your situation and how much house you can — and should — afford both now and in the future.
NOT RESEARCHING THE AREA SUFFICIENTLY
Maybe you've always wanted to move to that sleepy beach town where you had so many idyllic vacations with the kids. What could be better than year-round paradise? However, as amazing as the locale might be, you want to make sure that you aren't viewing it through the prism of vacation fun, rather than considering your day-to-day reality.
It might have the best outdoor dining around, but is there health care close by? How about grocery stores and other amenities? Are there fellow retirees to socialize with or is the place full of mostly students or families with little kids? How about transportation options if you can’t drive? Does it shut down in the “off season?”
The Fix: Even if you’ve always had your mind set on a certain area, living there permanently can be a lot different than it is for a two-week sojourn. Try a more long-term rental and search out the conveniences you need and want and the type of neighbors you’ll have.
FORGETTING YOUR NEEDS ARE LIKELY TO CHANGE
“People tend to buy for today, not tomorrow. That can cause problems as your mobility declines,” says Mike Bell with Sotheby's International Realty in Pasadena, California.
“Most new housing has stairs so if you are considering a two-story home, it’s wise to buy one with a bedroom on the first floor,” he suggests. Also consider factors such as whether the doorways are wide enough to accommodate a wheelchair should you need one, if the entrance is flat and whether you can make the kitchen and bathroom accessible if your circumstances change. And, abilities aside, don’t overlook the issues that can arise with a house or yard that’s just too big to maintain as you age.
The Fix: Look at the house through the lens of what you need today, but also what might come in handy tomorrow. “I've sold too many homes where people wish they had considered that ‘things change,’ and that they had had even a short conversation with their agent before they made their investment,” Bell says.