With the gargantuan increases in property values in most Canadian major cities, baby boomers are doing a lot of thinking. When do we make our move? Where do we make our move? Do we make our move? Hopefully, the kids are long gone. Of course this plays an ever increasing part in your retirement planning, according to recent statistics. Don’t fool yourself. Maybe you’re sick of mowing the lawn and tired of paying to heat and cool a nearly empty house. Why not right-size?
You’d have company. Among retirees who move, half swap for smaller accommodations, found a new study by Merrill Lynch. Most of the right-sizers say cost cutting was the chief reason. Booming real estate prices have made the payoff even bigger. Home equity, for many baby boomers, far exceeds the value of their retirement savings. It’s where their wealth is.
With right-sizing, however, come hard decisions. Stay nearby or leave town? Condo or single-family home? Making the wrong move will cost you – and maybe you’ll have to relocate once again. I’ve seen people who want to move to places where the taxes cost more than for the house they are moving from. They just didn’t do enough due diligence. Of course, this due diligence in part of proper financial life planning, provided they did. Not sure, try tackling these questions.
Here or there?
Exchange your house in an upscale suburb Toronto, say, a cottage in the Kawartha’s, and you’ll almost certainly pad your retirement fund. But people often overestimate their savings. The transition itself, including outlays for paying your selling broker and moving all your stuff, may cost you roughly 10% of the price of your old place. And then there are the unexpected expenses. For example, while your tax bill may shrink, your home insurance premiums may grow. Another surprise? With the change in setting, you may realize you need entirely new furniture. It is certainly cause for thinking.
Want to stay near your current home?
You’ll reap minor rewards by losing a bedroom or two. For bigger savings, see if moving a few more miles away would put you over the line into an area with lower property taxes, or if you can move close enough to a walkable downtown to forgo at least one of your cars.
Condo or single-family home?
In general, condos are cheaper than single family homes, and you won’t have to clean gutters or replace the boiler. You’ll pay, though, for shared maintenance. So ask current owners about their monthly costs; condo fees, which may cover items such as yard work and water supply, are often higher than buyers expect.
Check out future condo maintenance and condo corporation reserves. I know of one condo on the lake in Burlington that had not properly prepared for window replacements to the tune of $3 million. Condo owners are on the hook for that. Buyer beware. And be sure you’re ready to live near other people and by their rules: condos can have restrictions on everything from dog breeds to overnight guests.
Buy or rent?
If you’ve owned your home for a long time and have a small mortgage, or none at all, you might assume that buying is better, chiefly for a sense of permanence. In retirement planning we try to reduce variables, and rent is a major variable. Sometimes renting makes more sense – for example, if people you want to stay close to, such as your kids, might themselves move in a few years. If you’re not absolutely sure you want to be somewhere for more than five years, don’t buy.
Have a ton of home equity but little in retirement savings? You might add the proceeds of a home sale to your portfolio instead of plowing it into a new home. Over the long haul, a balanced portfolio is likely to appreciate faster than residential real estate. Depending on where you’re looking to live, renting may also be cheaper than buying a comparable home.
Now or later?
Some retirees are reluctant to leave the house where they raised their kids or want to postpone the hassles of moving. But if you’re going to right-size, the earlier the better. You’re likely better equipped for the physical and emotional stress of a move in your sixties than in your eighties.
That stress should also push you to ensure that your new home has features allowing you to age in place: wide hallways, a step-in shower, and rooms all on one level so you don’t have to negotiate stairs. You also need to make sure the local community has public transport and good medical care. Given the pain of moving, your goal should be to avoid having to do it again.
Getting right-sizing right does not have to be complicated. Its a matter of thinking ahead and even testing our your options. Its not necessarily an easy endeavour. Most people entering this stage of life who are forewarned and prepared are Keeping Life Current.