Among all the decisions you might make while planning financially for retirement, where you choose to live can be among the most important. And you might be surprised by what kind of limitations your decision can impose in the future. The area – and the home – you live in during retirement may affect the amount of savings you spend on things like upkeep on your house and transportation as you age.
There are many factors that may influence you as you plan where to retire – like an area’s cost of living, healthcare options and whether your family is nearby, but consider the following less-obvious things as you finalize your plans.
How much is your home really costing you?
If your mortgage is paid off, or you plan to have it paid off by the time you reach retirement, you might believe you’re in the clear. But it’s important to also consider how your geographic location might affect upkeep costs and taxes, which can take a significant bite out of your monthly retirement budget.
Here’s another way to look at it. The standard estimate for a home’s annual maintenance costs range from one to three percent of its original cost.1 Add an average of one percent of the home’s value for property taxes.2 Based on these figures alone, a $400,000 home would require a $12,000 yearly outlay – or $360,000 during the average 30 year retirement. If you were to scale back to a $200,000 home, you could realize a sizable savings of $180,000 during retirement.
Is your current home elder-friendly?
Few people enjoy thinking about the physical limitations that often accompany the aging process, but this is crucial to consider when you’re deciding where to spend your retirement years. Most large homes are multi-level, which can be challenging – even unsafe – to navigate if it becomes difficult for you to move around physically as you age.
This isn’t to say that a smaller home or assisted living facility will be the best option for you. If you wish to remain in your current residence as long as possible, in-home eldercare and hospice services are readily available. Whatever you choose, it’s your responsibility to weigh your options and the associated costs before you – or your family – are forced to make difficult decisions in the future.
Retrofitting your home to make it easier to move about as you age can range from simply adding safety railings and bars, to more extensive remodeling including installing ramps and elevators. While you may initially cringe at such expenses, it’s important to consider the long-term savings that can accompany such improvements.
Consider the case of a person who is no longer able to remain in his home and moves into an assisted living facility. The cost may range from $4,000-5,000 per month, or approximately $25,000 for a five to six month stay. A similar investment toward retrofitting your existing house may enable you to stay in your own home much longer.
It’s also important to remember that these kinds of home improvements often make properties more attractive to potential buyers if you decide to sell your home.
Does the area where you live meet your needs and retirement goals?
You may also ask yourself if the area you live in will meet your needs later in life. Are you close to healthcare facilities? If you outlive your ability to drive are there grocery and convenience stores within walking distance or that offer delivery services?
Likewise, as you think about the things you want to do during retirement, it’s important to consider if your metropolitan area is a good fit. For example, if you want to spend more time with family members that have moved away, you must account for travel expenses in your retirement plan.
Still not sure you have all the information or resources you need to make these – and other – complex decisions about retirement? Work with a financial planner who can help you to prepare financially for retirement while considering your location, your lifestyle and other aspirations.
1Freddie Mac, November 2011. Depending on when you purchased your home, and the age and condition of the property at the time of purchase, this figure may be higher or lower.
2Source: The Tax Foundation: Property Taxes on Owner-Occupied Housing by State, 2004 - 2009
3Source: Center for Disease Control
Rob Davis lives in University Place with his wife Lorri and sons Wesley and Parker. With over 34 years of experience, he is a CERTIFIED FINANCIAL PLANNER™ practitioner and is licensed/registered to do business with U.S. residents in the states of Washington and Idaho.
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