5 mistakes to avoid when buying your dream retirement home
Nearly two in five retirees move during their golden years, usually to cut expenses or downsize, according to a TransAmerice survey. Others buy a larger dream home as they kick off a new phase of their lives.
While a big move is always a challenge, making such a serious change in retirement comes with unique challenges and pitfalls. Before putting your home on the market as you start your retirement life, be sure to be aware of these common traps.
1. Don't be dumb when downsizing. A smaller home doesn't necessarily come with a smaller price tag. If you want to buy in a more desirable area than your current home, you may have to pay as much or even more for less square footage. And don't forget other money items. For instance, a new city may have higher property taxes, while a new neighborhood could come with heftier homeowner association dues, says James Atkinson, a financial planner at Columbus Capital in Columbus, Ohio. "Do the homework, ask friends who live nearby and factor in the new costs to the lifestyle," he says.
2. Don't forget the cost of selling. Getting a new home usually means selling your old one first. And that means budgeting for important details such as the "time and money spent on improvements before sale and getting comfortable with the sales price," says Edward Jastrem, a financial planner at Heritage Financial in Westwood, Massachusetts. Don't forget to subtract the real estate agent's commission from your gross profit. Then, you need to consider how capital gains can affect your Medicare premiums, says Howard Pressman, a financial planner at Egan, Berger & Weiner in Vienna, Virginia. "This usually comes as an unwelcome surprise to people," he says.
3. Don't get the wrong layout. Remember that you're not getting any younger and your new home should reflect your desire to age in place. That means you should look for a one-story floorplan or a multiple-story home that has everything — including the master suite, bathroom and laundry room — on the first floor. Look for other aging-in-place features, including wide doorways and hallways, grab bars and curbless showers in the bathroom, and door levers rather than knobs.
4. Don't overlook the hassle of moving. A survey two years ago from the U.K. company E.ON found that moving is the most stressful life event, edging out a break-up/divorce and starting a new job. So get ready with loads of patience and a deep emotional reserve. Finding the perfect new home can take many weekends driving from open house to open house. Once you close on your new home, the moving process begins with sorting unwanted items and packing everything else. This can be even more complicated if you're downsizing because you have to sort through much-loved possessions and years of documents and take the time to sell, donate or throw them away.
5. Be careful when upsizing. While downsizing is the norm in retirement, one in 12 seniors buys a bigger house, according to the TransAmerica survey. Be extra careful when doing this, though. First, make sure you have the resources and cash flow to manage the cost, especially if you get a mortgage, says David Demming, a financial planner with his own firm in Aurora, Ohio. Also, think about the extra work in keeping up and cleaning a larger home, especially as you age, says Marguerita Cheng, CEP of Blue Ocean Global Wealth in Potomac, Maryland.
"One couple [I know] were able to purchase more home for their money and could afford the payments. But the maintenance became to be a bit much," she says. "Also, with a large home in a desirable city and a blended family, holidays were stressful because everyone assumed they could stay there because they had the space."Top Reads from The Fiscal Times