Retirement means major changes to your life. When you give up work, you’ll have a lot more free time and flexibility. But there may be another big change as well. For many retirees, it may make sense to sell the home they lived in while working and to move to a new place instead. Of course, this isn’t necessarily the best choice for every senior.
But here are some reasons why selling your home after leaving the working world could be the best choice for you.
• You Could Downsize To A Property Without A Mortgage: If you are still making a monthly mortgage payment on your current home that would mean you’d need more retirement income to cover your housing costs. That could drain your investment account sooner or cause you to skip out on things you might enjoy doing in retirement, such as traveling. If you can afford to sell your current home for enough money to pay off your loan and purchase a smaller, mortgage-free property, that added flexibility that can come from this move could potentially make your retirement a lot more enjoyable.
• You Could Relocate To An Area With A Lower Cost Of Living: If you had to live in an expensive location as a result of your job, then retirement could present a golden opportunity to move to an affordable area with a low cost of living. If you don’t have to pay as much for housing or other necessities, this can make your money go further and open up the door to spending your cash on other fun things in retirement.
• You Could Reduce Your Ongoing Maintenance Obligations: In retirement, chances are good you may not want to be bothered with a lot of the expenses of home ownership, including cleaning and outdoor upkeep. If your current home requires you to spend a lot of time or money maintaining it, then you may decide it makes sense to sell it and switch to a different space. A smaller home could require less energy and effort to care for. And if you’d lived in your home a while, then switching to a newer one could mean you avoid the need for a lot of expensive upgrades or fixes that old houses tend to require. And for more options beyond a smaller home, check out our guide on alternatives to single-family homes.
• You Could Find A Home Where You Can Age In Place: As you age, your needs for your home may change dramatically. For example, you may eventually need a property that is all on one story if you become unable to easily do stairs. Or you may need wider hallways for a wheelchair or grab bars in the bathroom. You could wait until you reach an age where you are unable to manage your current property. But that often means moving in a crisis. If you’d rather take the time to find a perfect new home that will accommodate your needs as you age, then it can make sense to make a change early in retirement. As a bonus, you can become entrenched in your new community while you’re still relatively young and mobile so you’ll be more comfortable living there as you age and potentially develop health issues. Whether any of these scenarios applies to you or not is an open question, as everyone’s situation is different. But as you can see, there are often plenty of great reasons to relocate in retirement. So be sure to give the idea serious consideration as you think about what life will look like after you’ve left the workforce for good.
• Buying A Retirement Home: Should You Wait: Even if retirement is far off in the future for you, there’s no better time than the present to arrange your retirement housing. This is especially true if you plan to take out a mortgage to finance your purchase. Buying a retirement home early, rather than after you retire, brings about a myriad of benefits. First, applicants generally have an easier time getting approved for a mortgage while they’re still fully employed. Taking out a mortgage now allows you to lock in a low interest rate and get a head start on paying off your mortgage. Going through the process of buying a retirement home early also gives you plenty of time to save up for any renovations or updates that you might need in the future.
• Talk To Your Significant Other: If you have a significant other, it’s important to have a conversation about your desires. Don’t assume that you’re both on the same page. Have several talks about what kind of home and lifestyle you desire. This may require some compromise, but make sure to reach an agreement where you can both be happy.
• Test It Out: Whether you plan to move across the country or into a retirement community, make sure to test out your vision. Someone who likes the idea of living in a community might find that they don’t enjoy abiding by rules. Subsequently, someone who wants to move to Utah may discover they don’t enjoy hot weather. Spend time visiting different retirement communities or vacationing in various destinations to find out what environment suits you best.
• Take Mobility Into Consideration: Make sure to factor in mobility when picking out a place to live. Assuming that you’ll always be able to drive is a mistake. Instead, be sure to measure walk ability and the availability of public transportation. Ensure that you’ll be able to get to important places, such as the hospital or the grocery store, even without a car.
• Pay Attention To Accessibility: In addition to mobility, be sure to pay attention to accessibility when looking at properties. Single-story properties are a popular choice amongst retirees, as they cut out the need for stairs. Other features to look for include wide entryways and hallways, step-in showers, and rooms that provide enough space to move around in a walker or wheelchair. Even if accessibility is not a current concern, keep in mind that retrofitting a property to become wheelchair accessible can be very expensive.
• Remember Your Friends And Family: Many people dream of retiring to a faraway destination, such as a beach town or even abroad. However, before you leave your old life behind, be sure to consider how big of an impact leaving your support network can have.
• Work Out A Post-Retirement Budget: Sit down with a financial advisor and work out a realistic post-retirement budget. Getting an idea of your monthly retirement income and expenses now can help you identify areas that need more preparation. This can also be a great time to look into passive income opportunities to help boost your post-retirement income.
• Buy Based On Your Future Income: For those buying a retirement home early, be sure to calculate how much house you can afford based on your post-retirement budget and not on your current income. Even if your monthly income were to stay roughly the same, the amount you can afford to spend on home-related expenses might change significantly.
• Assess The Impact On Your Taxes: Be sure to take a look at the possible financial implications when planning to move to a new state or country. Some states have high property taxes, making your investment that much more expensive. Also, look into how your retirement income taxes and exemptions will be impacted based on your move.
• Be Realistic About Home-Related Expenses: Be sure to factor in home-related expenses when calculating your home-buying budget. Costs may increase or decrease based on the age and condition of the property, severity of the weather, or whether or not your future home is part of an HOA or retirement community.
• Make A Down Payment Wisely: Some individuals are tempted to put their life savings toward a down payment to lower their monthly mortgage payments. However, this strategy can lead you to be house rich and cash poor, leaving little wiggle room for unexpected expenses or emergencies. Sit down with your lender and financial advisor to choose the right mortgage option and debt structure that best suit your needs.
Advantages of Buying a Second Home In Retirement
Even if you were convinced of the advantages of buying a retirement home early, by now you might be wondering how exactly you can afford two mortgages at once. Although it may seem counterintuitive, buying a second home now can actually boost your income and help you save up for retirement sooner. The key here is to think of your retirement home as an investment property. You can use the rental income toward your mortgage payments by leasing out your second property until you are ready to retire. The further in advance you make your acquisition, the more time you have for someone else to pay down your second mortgage. Any rental income not used to pay for expenses can be used to bolster your retirement savings plan. During this time, you will have enjoyed property appreciation on two properties instead of just one.
Once you retire and move into your second home, you can rent out your primary residence instead of selling it. In doing so, you will maintain the additional income stream in your retirement years and can also open up the opportunity to continue expanding your rental portfolio if so desired. Your debt to income ratio will be lower while you are still employed, which makes securing a mortgage loan easier. Of course, locking in a mortgage rate while interest rates are low is a smart long-term investment. If you buy your retirement home now, you can save yourself money in the long run. The income you make before you retire is also useful when making renovations or upgrades to your future retirement home. You may want to add accessibility features to the home that you may not necessarily need now. Plan ahead and use the money you’re making now to make changes to your house to save time and stress in the future.
Common Mistakes To Avoid
Buying a retirement home will require you to think about your future and anticipate life changes. It can be hard to know exactly what to expect as you get older, but there are a few common mistakes to avoid as you consider your next move:
• Don’t Blow Your Budget: While there are several upgrades you can make when purchasing a retirement home, be careful not to exceed your target price range. Think about unexpected costs, such as medical bills or home repairs that you may encounter in the future. Remember, your income may not always be as high as it is now, so plan accordingly.
• Don’t Move On a Whim: Buying a retirement home can be the perfect opportunity to move to a new place. That being said, you need to think through what it means to live in an area before buying property. Let’s say living at the beach is a dream of yours. What will you do during hurricane evacuations or floods? Research the areas you want to move to and make plans accordingly so you are not caught off guard by new places, especially as you get older.
• Don’t Forget About Family and Friends: Another factor to keep in mind as you search for your dream retirement home is family and friends. It takes time to become part of a new community, and it can be difficult to meet people after moving to a new place. Think about how close you will be to those you like spending time with and factor that into your search for the perfect home.
• Don’t Use All Your Cash At Once: While it may be tempting to want to pay for a retirement home in cash, it may be smarter to pay for a large down payment and take out a mortgage on the property. Instead of paying for the property in full, a mortgage may protect your cash in case property values drop. In addition, this strategy also allows you to have extra funds to spend in retirement instead of using all your cash on a retirement property.
You most likely understand by now how important it is to start planning for retirement as soon as possible. You’ve also learned how buying a retirement home now, rather than waiting until after you’ve retired, can boost your retirement savings. Remember, buying a second home early allows you to use it as a rental property and increase your cash flow opportunities. Also, establishing a rental portfolio is a great way to secure additional revenue streams in your retirement years. Utilize these strategies when planning for your future retirement to ensure that you will live out your golden years in a property and location that will make you happy. Don’t also forget to always seek an attorney opinion before you embark on anything.
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