Q: As I approach retirement, I’m not sure if I should stay in my current home or look at other options.
A: Many baby boomers – those born between 1946 and 1964 – are now reaching retirement age. According to the Urban Institute, they will live longer, be more healthy, work longer and accumulate more debt than any previous generation. The largest component of that debt will typically be a home mortgage.
Money Watch advises that “housing costs make up one-third of the average American household’s budget, the largest monthly expense for most families. And since reducing living costs is the most common way to make ends meet in retirement, it makes sense to take a hard look at your housing costs and what you can do to reduce them.”
There are a variety of ways retirees (or those approaching retirement) can reduce their housing expenses. Paying off a mortgage before retirement (or as early in retirement as possible) is generally the first recommendation of financial advisors. You can speed up the process of paying off your mortgage by switching from the more common 30-year loan to a 15-year or 10-year loan product or making additional principal payments whenever possible. Today’s interest rates are at such historic low levels that you are likely to save money through refinancing no matter the length of the loan term you choose.
Downsizing to a smaller house with fewer expenses (e.g., electricity, taxes, landscape care) is a popular strategy. Generally retirees need less living space than when they were growing and taking care of families.
Certainly another option is to sell the home and use the proceeds to rent something else during retirement. Renters typically do not have the real estate taxes, insurance, maintenance and repair expenses of homeowners. At the present time, however, rents are high enough in parts of Colorado that this may not be a helpful step for homeowners who have older mortgages with small monthly payments.
More challenging solutions for seniors include moving to another city or state where housing and expenses are lower; or even to another country that offers a lower cost of living.
Realtors® with the special Senior Real Estate Specialist (SRES) designation after their names, who have additional training in working with sellers and buyers 50+ years of age, can be especially helpful in these situations.
If moving is not an option, consider renting out space in your home to generate income to help pay expenses. A recent trend is towards co-housing, living communities in which people spread the expenses of home ownership over a group of people – what one commentator called “the Golden Girls solution.” Co-housing dwellers may share food costs, transportation and other resources that help keep costs down.
A “reverse mortgage” allows you to live in your current home and use the equity in the home to pay make your loan payments. If you think you will need that equity for health or long-term care, then this might not be the ideal solution.
According to the Harvard Joint Center for Housing Studies and the AARP Foundation, “the biggest threat to your retirement security may be the home you live in.” Take the time to consider all of the options. Your Realtor® can help you understand the most important factors and put you in touch with other professionals who can help you make the right choices.
By Saul Rosenthal, for Colorado Association of Realtors