For many contemplating retirement, one’s future living arrangements are the most thought out, but least acted out, aspect of retirement planning. According to the US Bureau of Labor Statistics. Despite the fact that housing is the highest average cost in retirement, older Americans move much less frequently than the general population. The home is the last bastion of the status quo, and many remain in their existing homes, unless forced to move due to health concerns. However, from a financial point of view, this rarely makes sense. A home is generally a poorly diversified, cash flow-intensive investment that historically is only priced in line with inflation. At a time when human capital is depleting and financial capital is shrinking, a home should be viewed as a lifestyle choice, not an investment. Living locally is a consideration, but moving your residence upon retirement may be the best option.
Financial considerations aside, where you live in retirement affects many other aspects of a happy life after employment. Where you live influences your hobbies, social media, family life, and access to health care. In sum, your residence is your retirementSo you should treat this as a primary decision in retirement planning.
The good news is that, assuming there is some degree of retirement savings, retirees have many options. Not only can you opt for a different geographic location (for example, south versus north), but you can also select a different living structure (condo versus house) or a new living arrangement, such as an active living community versus a traditional neighborhood. . Financing a new home lifestyle also offers options: reverse mortgages, back-sale and leaseback, and community-based care retirement arrangements are all possible financing approaches.
The challenge is that you haven’t retired before, so it’s hard to imagine how this all works. As we learn best by example, perhaps studying the retirement arrangements of others will simplify the task. Below are three case studies of successful retirement moves, offering insight into the possibilities that exist.
Oliver – Mother-in-law’s cabin
Oliver and his wife moved to the Midwest when they were 40 years old to pursue their teaching careers. His wife died of cancer in the late 1950s and Oliver continued to work until the late 1960s. Reflecting on his retirement as a widower, Oliver, an avid fly fisherman, realized that nothing was holding him back in the Midwest, and that her daughter and her family lived in Seattle, where the fish were friendly. Housing was his biggest challenge: Seattle’s housing market is very crowded. Oliver’s solution was what is colloquially called a “grandmother’s pod” or “mother-in-law’s hut.” Due to a housing shortage, Seattle zoning laws allow families to build small housing structures in neighborhood backyards and alleys. With the proper permits, Oliver was able to build a small house in his daughter’s backyard, and now divides his time between watching his grandchildren grow up and perfecting his fly-fishing casts.
Carolyn – Small Apartment and Big Boat
Carolyn and her husband created a successful business in Duluth, Minnesota, so successful that they were able to retire early. They wanted to move to a place with a warmer climate than Duluth, so they moved to the Florida Keys. They fulfilled their dream of retirement by acquiring a small apartment and a large ship. Living primarily on their ship, they enjoyed retirement sailing the Keys. But when Carolyn’s husband died unexpectedly eight years after his retirement from the storybook, Carolyn found herself in her late sixties facing a new phase of her life in retirement. She didn’t envision the Keys as a place where she wanted to be a widow for more than 20 years, so she decided to move into a condo upstate. Wanting to pay for the boat and finance his new condo, he got a “HECM for the purchase.” A Home Equity Conversion Mortgage (HECM) for purchase is a reverse mortgage that allows a senior to purchase a new residence using the funds from the reverse mortgage loan. This arrangement allows Carolyn the flexibility to decide whether and when to take advantage of her home equity without assuming the risk of future foreclosure. The second act of your retirement has begun.
Tom and Marge – Continuing Care Retirement Community
Tom was an FBI agent and Marge was a teacher. They were able to retire from full-time employment comparatively earlier and wanted to move from their last assignment in Chicago. His solution was to travel across the country, partly to see the sights and partly to decide on a retreat location. Once they landed in eastern North Carolina as his choice, Tom found a job as a part-time teacher at a community college. They bought a house and lived there for 15 years. In the late 1970s, concerns about frailty became a problem. They researched their options and ended up selling their home and making an advance payment to a Continuing Care Retirement Community (CCRC). This gave them a safe and pleasant place to grow old in their place. For three years they enjoyed their two-bedroom apartment, made new friends, and aged gracefully. When Marge died at age 80, Tom moved into a one-bedroom apartment in the same building and lived there for several more years. In his last days, because he lived in a CCRC, he had easy access to necessary health services and died where he lived. Tom and Marge were my parents.
A checklist for your retirement life
Your retirement journey will be unique, but if you are like most retirees, where you live will influence that journey. In particular, if you anticipate a change of location when you retire, there are some key considerations to keep in mind. Topping the list are geographic location, living arrangements, access to health care, financing, and contingency plans.
Geographic location – An old adage warns that “don’t retire where you go on vacation.” While this caveat may be overstated, there is some truth that retirement is about more than just locating where you enjoy playing. While it can be a great stress reliever to sit in a tiki hut on the beach, an oceanfront property may not be ideal for retirement. That said, many retirees include their hobbies and recreation in their deliberations. Tom and Marge chose North Carolina because they loved to play golf. Carolyn and her husband were living the dream on their boat in the Keys. And the proximity to the grandchildren was a huge plus for Oliver. In fact, for many retirees, watching their grandchildren grow is a favorite pastime.
The choice of location can also be influenced by tax issues. In part due to limits on the federal state and local tax deduction (SALT) and spurred by work-from-home technologies, income tax-free states have seen an explosion in transplants from wealthy early retirees. These families are improving their plans to relocate to tax-friendly jurisdictions.
Home – You don’t need to look beyond the retirement community of The Villages in Ocala, Florida, to see how living arrangements are a key consideration for retirees. The Villages County’s population has increased more than 54 percent since 2010. Call it simple or convenient, this “active adult community” for people 55 and older attracts many seniors, with a current population of approximately 80,000. This concept of birds of the same plumage retiring together has been well tested in the US The original community of active adults, Arizona’s Sun City, is now over sixty years old.
A competitive model, the CCRC, is also flourishing. This approach involves a decision that is for life, but in return alleviates aging-related residential problems. As your needs change, you can move from independent living to assisted living and skilled nursing. Both the CCRC and the Active Adult Community Models offer community, access to healthcare, and extensive amenities.
By moving into a CCRC, Tom and Marge were better able to enjoy the latter part of their retirement because the living arrangement freed them from the challenges of homeownership and cooking, and also allowed them to change residences as their needs changed. .
Health coordination – One consideration related to physical residence is access to medical care. After losing her husband, Carolyn realized that a ship in the Keys was very limited in terms of access to medical care and moving to a condo on the mainland offered more options. Even more efficient was the transfer of Tom and Marge to a CCRC, where they were literally a short distance from the hospital. Even Oliver improved his situation when he moved in with his daughter. As a widower, you now have family close by if you need help with medical appointments.
Financing – Since retirement involves the de-accumulation of assets, an important consideration is financing any planned change of residence. If the retiree has no home equity or savings, options are limited and Medicaid planning may be required. However, if the retiree has a mortgage, there are many options to finance a change of residence. In general, for a recent retiree, obtaining a new conventional mortgage is impractical and a financial burden. There are better ways to free up or leverage existing capital.
Oliver obtained a secured loan for his home in the Midwest to finance the construction of his “granny pod” in Seattle. When he subsequently sold his home, he was able to pay off the swing loan and free up cash flow for retirement income. With Carolyn, her HECM for purchasing provided significant flexibility in managing her future cash flow needs. You used part of the HECM loan proceeds to pay off the remaining balance on your ship, and now you have a line of credit that you can take advantage of if you need to increase your retirement income. A reverse mortgage can be expensive, but for Carolyn it is worth the cost because it protects cash flow without the risk of foreclosure. Finally, as for Tom and Marge, with the sale of their home they were able to pay the one-time deposit on their CCRC contract and free up cash to supplement their monthly CCRC installments.
Contingencies – Retirement is rarely a straight line between leaving your job and dying years later. This is particularly true when thinking in pairs. The three previous stories have a common element: they involved marriages. In Oliver’s case, his wife died. prior to Retirement; with Carolyn her husband died early on Retirement; and with Tom and Marge, one of the spouses died later in retirement, but still years before the survivor passed away.
When planning for retirement, a couple must grapple with the reality that spouses rarely die at the same time and that the death of a spouse drastically affects the survivor’s retirement plans. It took him a decade, but once Oliver retired, he moved thousands of miles away. Carolyn, now retired, went from a boat to a condo. And Tom just changed apartments, but even this transition changed the life of an 80-year-old man. Contingency flexibility should be part of the retirement plan because one way or another a change will occur.