Friday, October 28, 2011
A Retirement Plan in the House
I have to wonder what people sometimes think, Boomers in particular. Confidence is down but spending is up. The recession isn't really a recession but for many it seems like one.The media talks of millions of homeowners looking for mortgage relief, being foreclosed or worse, are feeling the crush of owning a home adversely impact their retirement plans. And yet, some people are still planning a future with their house as part of the process.
Could be a sign of the times and then again, it might be the progression of where we would be in our retirement plan. If the results of the latest Associated Press-LifeGoesStrong.com poll are any indication, we have reached a pivotal point in retirement planning. Should I stay or should I go?
A great many retired couples have told me over the years that the biggest mistake they may have made was selling the family home. They have opted for a dream instead and chased it with their new found retirement freedom. But many failed to take into consideration that a place is more than just a shelter. It can be proximity to children and grandchildren, services such as health care facilities or other seniors and often, in communities that are growing with younger cohorts. And almost equally as many have found the size of the house they own in their pre-retirement years is simply too large to accommodate - or worse, afford.
Should it be a surprise that we begin making post-work plans in midlife? Or is the surprise the decision we make? According to the recent Associated Press-LifeGoesStrong.com poll, three out of ten midlife retirement planners are suggesting that they will look elsewhere when they do retire. And according to the poll, they are resigned to sell the family home for less than what they had thought it was worth a decade ago.
But that is understandable for two reasons: those out-sized estimates of property worth have been adjusted to fit a lackluster economy and there is a greater chance that the equity they may have calculated has shrunk due to refinancing. Folks in the midwest are more likely to stay put, more so than their east coast neighbors.
The poll also suggests according to Barbara Corcoran: "more than four in 10 want a smaller home, 30% would like a different climate, 25% will look for a more affordable home, and 15% will pack up our bags for the sole purpose of moving closer to family." And when they do move these people dream of a one-level home with enough room to accommodate the occasional visitor, close to medical facilities and not in-city. And those that stay put waste almost no time converting their children's rooms into something more focused on their evolving interests.
Oddly, the question of taxes didn't come up in the poll, something of major interest to older people planning on a fixed income lifestyle. A larger home requires upkeep and maintenance that might not configure into a retired income. And the thought of a second home was not amongst the wishes this group had either. In fact, only about 12% want to feel the sea breeze in their graying hair.
The question is: how much of a role should your home play in your retirement plan? Many people have factored in the equity in their plans - or at least they used to - and the mistake made by these folks is twofold. One, you need to live somewhere and two, unless you own your home and have considered the chance that you might reverse the mortgage at some point. this equity is nothing but paper dreams.
A harsh reality but more true than not. If you are factoring in your home as part of an estate, then no doubt you have made all of the considerations, tax and otherwise, surrounding that decision. But if the home will become unmanageable (how hard is the upkeep now?), then looking for the opportunity to sell it, no matter how much you might "love" the house, the location, the neighbors, should be weighed.
As retirees approach that magical time when you either cutback or stop working altogether, the best advice woud be to begin to stage the sale of the property now while your income is less fixed. If you don't sell, you will have a slightly improved place. If it does sell, it will help you get the price, or closer to the price you might think it is worth.
Paul Petillo is a fellow Boomer