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July 2, 2020
Do thoughts of retirement conjure up images of a moving truck and boxes? Does this image sound stressful?
If staying put sounds more appealing, you may be like many Americans approaching retirement age who say they actually wish to remain in the same home–or the same area–where they have lived their adult years.
“Sometimes it is just too emotional to make a big transition,” says certified financial planner Maggie Kirchhoff. Kirchhoff serves as vice president for Denver, Colo.-based Wisdom Wealth Strategies. “Retirement should be about you. Enjoy it.”
But some retirees may find that downsizing is a better fit for their lifestyle and can offer financial benefits as well.
“Financial considerations revolve around the cost of staying in one’s home as compared to some other alternative housing arrangement,” says Kevin M. Gahagan, a certified financial planner and principal at Mosaic Financial Partners in San Francisco, California. “In many cases, retirees have the opportunity to downsize their home and in the process eliminate debt and/or retain some of the sale proceeds for financial investments and support.”
Taxes should also be taken into consideration, Kirchhoff says.
“When you sell your primary residence, you can make up to $250,000 in profit if you are a single owner and up to $500,000 if you are married,” she says, explaining that those first gains on the sale of a primary residence are not taxed. “Anything above those amounts would incur capital gains tax.”
In addition, when evaluating whether a new location is right for you, research the state and property taxes in that new area, says Christopher Olsen, certified financial planner and owner of Lodi, California-based Olsen and Associates, a financial advisory practice of Ameriprise Financial Services, Inc.
Property taxes vary widely from state to state, and within states, by locality.
To determine whether a move in retirement is right for you, Gahagan suggests asking yourself these important questions:
Another consideration: a reverse mortgage is a loan that enables homeowners aged 62 or older to borrow against the equity in their home without having to sell the home, give up title, or take on a monthly mortgage payment.
For many retirees, reverse mortgages offer an additional revenue stream that allows them to remain in their home, afford modifications to the home as needed, finance travel, and more.
The home equity conversion mortgage (HECM) is the most common type of reverse mortgage and is administered through a program under the U.S. Department of Housing and Urban Development.
The government determines how much borrowers are eligible to receive in loan proceeds based on their age, home value, and current interest rates.
A reverse mortgage can change your financial picture if you decide not to move or can help you purchase a new home through the HECM for Purchase loan option.
If you decide to move, and you have your heart set on a new location, Olsen suggests renting in the new area for a year before committing to a permanent move.
“If they like it, then they should consider moving,” Olsen says. “If they don’t, it is easier to make a change. I had a client who loved the opera, museums, and the theater [and moved]. The new area had none of that so the client moved back.”
Ultimately, working with a financial planner to weigh the financial feasibility of a move is key to ensuring a move is in your–and your pocketbook’s–best interest.
In fact, whether you plan to stay where you are, relocate somewhere nearby, find the best state to retire, or move some far-flung and exotic locale, one thing is certain: everyone needs a good retirement financial plan.
Housing is probably your biggest cost and most valuable asset. As such, it is very important to consider carefully where you live. A good retirement calculator can help you assess your options and enable you to try different scenarios.
The NewRetirement Retirement Calcluator can show you what happens to your retirement plan if you downsize or get a reverse mortgage. It also enables you to easily calculate how much money you have and how much you really need for retirement.
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