US News and World Report By Rodney Brooks, Contributor |July 10, 2018
Many people dream of retiring to warm weather states like Florida or Arizona and spending leisurely days golfing, fishing or walking along the beach. But those dreams can easily turn into a big retirement mistake. As great as it may feel to retire in a bucket-list destination, moving to a new home in an unfamiliar area requires a careful plan. Take care to avoid these pitfalls when relocating for retirement.
1. Don’t get stuck in a location just because of its beauty or weather. Retirement home decisions must take into consideration much more than the area’s scenery. “While it may seem great to live out retirement in a sunny state, it may not be as glamorous as you think,” says Ben Barzideh, a wealth advisor at Piershale Financial Group in Crystal Lake, Illinois. “We’ve seen people move to a state and buy a retirement home, and they are bored and miserable and want to come back. They sell the home, sometimes at a loss.”
Some people who live in colder climates decide they want to retire in Florida without really knowing what it’s like. “They’ve never lived in Florida, don’t know about the weather and the traffic, but they are in a rush to buy a house,” says Dan Routh, an associate advisor at Exencial Wealth Advisors in Oklahoma City. He suggests that you go to Florida and rent for a year to see if that’s a place you want to live.
Think twice before being lured in by the beauty of a rural setting. It might be “a pretty place in the woods, but far away from shopping, your doctor, kids and grandkids,” Barzideh says. “Is it close to airports? In the first decade of retirement, people travel a lot if they are healthy.”
Access to health care and health professionals is another important consideration. “When you age, you need access to specialists,” Barzideh says. “Are there specialists within a half hour, or will you have to drive two hours?”
if you will have access to the things that are important to you for an enjoyable retirement. You might not want to move to another state if being near children or grandchildren is a priority. “Some people may think their dream is to go out in the country and get space,” Routh says. “Do you really want to retire to a beach house that is two hours away from the airport and family?”
2. Make sure your home is built for aging in place. A large home with lots of stairs may not be a good fit as you get older. “Make it a place that you will live in for the rest of your life – 36-inch doorways for wheelchair access, a walk-in shower,” says Joe Wirbick, president and founder of Sequinox in Lancaster, Pennsylvania. “I was looking for a home in Arizona and the homes with stairs cost significantly lower. Nobody wants stairs.”
If you buy a multilevel home you may end up selling it again or having to do expensive upgrades when you need more age-friendly features. “Don’t think we are invincible to our bodies aging,” says Bryan Bibbo, a financial advisor at JL Smith Group in Avon, Ohio. “That’s something people underestimate. They should consider a ranch-style home or a house that has a master bedroom and bathroom on the main floor.”
3. Don’t tie up all your cash in a house. Financial planners generally recommend against paying for a retirement home with cash. Wirbick suggests using enough cash for a large down payment, but taking out a mortgage on the property, if you can. “With interest rates where they are, I’d rather you keep your cash than dump it all into a home,” Wirbick says. “If you put your cash in a home, you may not get it back out.”
While many people want to enter retirement with no debt and no mortgage, sinking all of your cash into a new house means you can’t use the money for other purposes. “Today people can still get a relatively low rate on a mortgage,” Routh says. “You’d be better off taking out a mortgage and putting down something.”
4. Consider long-term housing costs. When you buy a retirement home, you need to determine if you can continue to afford the housing costs throughout retirement. “You do not want to overburden yourself with a mortgage,” Bibbo says. “Don’t exhaust your resources.” If you live into your 90s, you need to make sure you will still be able to afford that monthly payment.
In addition to your mortgage payment, you will probably have other monthly expenses. Remember to factor in real estate taxes, and if you are moving to a place with a homeowners association, there may be maintenance fees.
You should also have an emergency fund for real estate. “We all know life happens, whether the roof starts leaking or the furnace breaks down,” Bibbo says. “Have a pool of money for unexpected and ongoing maintenance on your home or vehicle.” That emergency fund should not be in the market, Bibbo says. It should be in an account that does not fluctuate in value.
Also, be prepared to manage costs as a widow or widower. When one spouse passes away, you will go from having two Social Security payments coming in to only one. If the spouse who keeps up with maintenance passes away first, you might need to hire someone to help around the house
5. Don’t forget to factor in taxes. Before moving to a new location, consider how much you will pay in taxes. You should look at real estate taxes, sales taxes and how your retirement income will be taxed. Find out if the state taxes your pension and Social Security income. Some states have estate and inheritance taxes that apply to those who plan to leave significant wealth to the next generation, while many other states have none. Pay attention to how moving to a new state could change your tax bill.