A lot of this blog is focused on issues that Millennials themselves are facing, but this week I want to share some thoughts for my Boomers. (Millennials, this is a good post to send to your parents if they are nearing retirement). If you are already retired or nearing retirement, the choice of where to live may be one of the biggest ones you tackle. Do you move somewhere with nice warm weather like Florida or Arizona? Do you move closer to where your children have settled to be near grandkids? Or do you stay put for as long as you can? Even if you don’t want to move, it may be out of necessity to lower living expenses. Let’s look at your options for staying in your current home versus renting or buying something smaller.
Option 1: Stay in Your Current Home
If you can afford to stay in your home and it’s a place you love, then stay! No one is making you move just because you retired. If finances are tight and you really don’t want to move you do have some options.
- You can pull out cash to supplement your income through home loan refinancing with equity pullout. This tool can let your extract equity from your house, but should only be done with a careful plan in place. Make sure you fully understand the product you use to accomplish this.
- You can take a reverse mortgage that lets you take the equity in your home via a loan that you don’t have to repay as long as you live in the house. It would need to be repaid when you sell and move out of the house or pass away. Make sure the math makes sense for this option as well.
And for those who have worked and saved hard for many years, you could become a snow bird with a second home. This may not make sense for most people but renting out one of the homes part of the year could help make the finances manageable.
Option 2: Sell Your Current Home and Buy or Rent Something Smaller
Whether you are selling your current home just to downsize or you want to move somewhere else, it may make sense to reduce housing costs. When selling your current home, make sure to consider the costs associated with it. There will be expenses for relator commissions, movers and potentially repairs. If you are willing to get creative, there are lots of options around selling your home.
One strategy is to sell your house to your children which can eliminate some of those costs. If your children are trying to buy their first home and are interested in yours, you can gift the down payment for your house to your children and they can go get a mortgage of their own for it. If your kids want to live in the house, you could build an in-law suite in the back for you to live in. All this though is contingent upon having adult children who want to live in the house which for many may not be the case. If you do buy something else, make sure that you are thinking of this as a home first. Many people like to think of homes as investments, but if you may only live in it for 10-15 years, that shouldn’t be the priority.
However, homeownership in retirement may not be right for you. The costs and work of maintenance on the house may be too much. If you are thinking of moving to an entirely new area, you may consider renting first. Renting is a good way to try something out first without the costs of buying a home and it’s easier if you change your mind. It may also give you time to decide what your lifestyle in retirement will be like.
Whichever choice you make in retirement, it must be right for your individual situation and lifestyle. Start planning early so you don’t have to rush a decision. And talk with your family. I know it may not feel comfortable but eventually your children will be dealing with your finances anyway. Why not start the conversation sooner so you don’t leave behind a mess for them to clean up?