The Truth About Retirement Living

Retirement living and housing myths still circulate. The myths continue not only among prospective retirees but also among financial advisors and the media. That’s unfortunate, because where to live is one of the most important and far-reaching retirement decisions. It affects both the financial and non-financial aspects of your retirement.

Let’s take a look at what retirees really do about housing in retirement, based on a recent study from Merrill Lynch, conducted by Age Wave.

The stereotype is that at retirement a person or couple moves, usually to a warmer climate and often to a smaller home (downsizing). That stereotype describes only a minority of retirees.

Only about 37% of retirees have moved in retirement. Another 27% say they anticipate moving, but it’s not clear they actually will move or where. Many say they anticipate they’ll have to move some day for health or medical reasons. A hefty 36% say they don’t anticipate moving in retirement. So, close to 60% of retirees haven’t moved in retirement and it isn’t clear they will, at least not because they want to.

The biggest reason people give for anticipating a move in retirement is to be closer to family, not to be in a warmer climate or near more golf courses.

About half of retirees don’t downsize. They move into a home that is the same size or even larger than the one they lived in before retirement. The main reason for not downsizing is so there will be room for family and friends to be comfortable during extended visits. Some even say they want enough room so adult children can live with them if they need to.

The top reasons for downsizing are economic. Most want to lower their monthly housing costs, and the burden of maintaining the larger home is another reason given for downsizing.

Only 7% of retirees say they moved into an age-restricted retirement community. The stereotype is that most retirees move into such enclaves of residents over age 55. The reality is that a minority of retirees makes that choice.

Even when people move in retirement, most don’t move far. About 83% of those over age 65 who moved last year stayed in the same state. Only about 17% of those over age 65 who moved last year relocated to a different state.

As people age, their homes can become more of an emotional investment. They often have lived in the same home for decades and have established strong community ties and friendships, in addition to the memories associated with the house.

Here’s how to factor these choices in your financial planning.

If you plan to live in the same home, remember to budget for all the costs involved. Most retirees find they need or want to make substantial improvements in their homes. At a minimum, things need to be replaced or updated. People often want to improve their homes to make them more livable or comfortable or to add some of the latest home improvements, especially technology. As people age, there also likely is a need to adapt the home to their physical limitations or comfort needs.

If you plan to move in retirement, consider all the angles before choosing a home. Will you be able to buy the home without a mortgage? Not having a mortgage in retirement provides financial and emotional well-being to many people. If you’ll need a mortgage, try to buy the home before you retire. It is easier to qualify for a mortgage when you have a regular income.

Don’t forget all the other costs of a home, even if you’re buying a new home. Despite all the possessions accumulated the last few decades, new things will need to be purchased for the new home. You’re almost certainly going to have homeowners’ association dues and other dues or fees. These are likely to increase over time, as are local real estate taxes. Remember, for many people retirement will last a long time. Maintenance, repairs, and updates are sure to come. These are likely to mount in later years. Your income then must be able to meet those expenses, or you might have to downsize at that time.

Many people assume they’ll save a lot of money by downsizing or moving to a lower-cost area. They overlook the selling expenses of their current home and the costs of moving to the new location. The bottom line for many people is the net equity they take out of their old home or the expenses they save by moving are less than expected.

When you’re thinking of moving, consider contracting with a real estate agent who will be a ?buyer’s broker.? Traditional real estate agents work for the seller, even when they’re showing the house to a prospective buyer. Most states allow agents to sign contracts to act as buyer’s brokers and act in the best interests of the buyer. This can be valuable, especially when you’re moving into a new area and aren’t familiar with local costs and fees or the problems with a particular community.

As with your overall retirement plan, before making a decision consider how you want to live in retirement, both day to day and seasonally. Do you want to be near your grandkids (or potential grandkids)? Or do you want a particular climate and range of activities? If you’re thinking of moving, what is lacking in your current house? Perhaps you need only to renovate it in some way instead of moving. Think about factors such as quality and availability of medical care for seniors, recreational and cultural activities, and friends and family. After deciding these big picture issues, it will be easier to focus on where to live, both regionally and by type of residence.