There’s No Place Like Home
One of the most pivotal decisions individuals face as they age is where and how they will live during retirement. This complex decision can significantly impact one’s wealth, lifestyle, and legacy. Let’s discuss the intricacies of this crucial choice.
First, what is a home? On one hand, it’s a consumable good – a shelter often providing an emotional anchor and a connection to a community. This shelter comes with property taxes, utilities, maintenance, and upkeep – which can end up being a significant expense.
A home is also likely a substantial investment asset, often representing a significant portion of an investor’s net worth. But like any investment asset, it is wise to remember that past performance does not guarantee future results, i.e., the housing market can fluctuate. Moreover, a home is a large, undiversified asset. In short, a home has emotional and financial importance, and balancing these two aspects is key to making informed decisions.
People as they age often think “I love my home. Why change?” And that’s a valid question. But as we age, our needs evolve. That large home that was perfect for raising a family might become a bit much to manage.
Nevertheless, many if not most individuals express a strong preference for remaining in their long-time homes as they grow older. If this resonates, think about how your home can evolve with you. Those stairs might not be an issue now, but how about in 10 or 20 years? Consider investing (and the costs of such investments) in modifications that will allow you to live comfortably and safely as you age. This could include installing grab bars and handrails, improving lighting, widening doorways for potential wheelchair access, installing an elevator or creating a first-floor master suite. However, also factor in the potential need for in-home care services and how you’ll manage these as your needs change over time. Comprehensive in-home care is certainly a viable option, potentially allowing individuals to avoid facility-based care if that is their preference.
Downsizing is also a common strategy. But downsizing doesn’t necessarily mean downgrading. Imagine moving from a large suburban home to a luxury condo in the heart of the city. This might involve trading square footage for proximity to world-class restaurants, theaters, and healthcare facilities, not necessarily a bad trade for those with an “empty nest.” This trade also could free up capital that could be reinvested or used to enhance a retirement lifestyle. At the same time, quality of life factors must be considered. For example, will a smaller home still accommodate family gatherings and important hobbies? These are all important questions to consider.
Relocation is also not uncommon, particularly to follow children and grandchildren or to achieve tax savings in states like Florida, Texas, or Nevada (although to move across states primarily for tax savings seems in many – but not all – circumstances to be letting the tail wag the dog). These states offer the advantage of no state income tax, which could impact retirement finances. However, it is important to look beyond just income tax rates. Consider also property taxes, sales taxes, estate and inheritance taxes, and overall cost of living when thinking through this option.
More adventurous types might consider an international move. Such moves come with their own set of challenges, from healthcare considerations to currency risks and potential tax implications. It is crucial to thoroughly research and possibly even trial-run any international relocation before making a permanent move.
Another commonly considered option is continuing care retirement communities. These communities offer a variety of care from independent living to skilled nursing care, along with luxury amenities. They often require a substantial upfront investment, or involve somewhat complex financial and contractual arrangements, but provide peace of mind for future care needs.
Finally, vacation properties, if any, should be considered in the overall financial picture as one ages. Could that beach house become your primary residence for tax or lifestyle reasons? Is maintaining multiple properties feasible and desirable in the long term? Could a vacation property be converted to a rental for additional income? These types of questions should be answered thoughtfully.
Housing decisions can also have significant tax implications. As is commonly known, there is for married couples filing jointly, a capital gains exclusion of $500,000 for the sale of the primary residence owned and used for a sufficient period prior to the sale. But there are also many other potential tax issues that should be raised with a qualified tax professional, such as using a qualified personal residence trust (QPRT) to remove a home’s future appreciation from one’s taxable estate.
Throughout all of this consideration of financial factors, it is crucial to remember the impact of the housing decision on one’s overall life satisfaction. Consider what truly makes you happy. Is it being close to family? Having access to cultural events? Living in a vibrant community? Relatedly, consider access to healthcare – proximity to quality healthcare facilities becomes increasingly important as you age. It is also wise to think about the need for flexibility in the housing plan – might there be a need to move again and, if so, how easy would it be to sell the chosen property.
As you navigate this decision, remember that there’s no one-size-fits-all solution. Your ideal retirement housing strategy will be as unique as you are. It should align with your overall financial plan, support your desired lifestyle, and provide you with peace of mind.
The key to navigating these complex decisions successfully is to start planning early, stay informed about your options, and work with a team of trusted advisors. Try to push against that very natural tendency of all humans to procrastinate when making difficult decisions involving the future. By taking a comprehensive approach to your retirement housing decisions, considering both the emotional and financial aspects, and planning for potential changes in your needs and abilities, you can create a retirement living situation that not only preserves your wealth but enhances your quality of life.
