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3 Things to Consider When Buying a Retirement Home


Leaving the workforce behind for good means making some important decisions that impact both your lifestyle and your finances. One of the biggest questions for many retirees is where they’ll live once they reach the golden years. Buying a home for retirement is a major financial commitment and you can’t afford to make the decision lightly. Whether you’re looking to downsize in your current area or pick up stakes and head someplace new here are a few things you need to consider before taking the leap.

Related: How Much Home Can I Afford?

1. Location

Real estate is all about location, location, location and it’s especially important when choosing a spot to retire. Depending on your situation, some of the factors that may influence your decision include proximity to friends and family, the climate, safety and access to medical care. Heading off to a spot that’s warm and sunny may seem like a no-brainer if you’re tired of frigid winters but it could come at a price if you’re leaving children and grandchildren behind.

Personal considerations aside, you also need to take a look at the financial implications of making a move. One of the most important aspects involves how buying a retirement home in a particular area may impact your tax situation. Certain states, such as Rhode Island and Connecticut, are notorious for having extremely high property tax rates which could make your dream home that much more expensive.

You also need to consider how your retirement income will be taxed if you decide to relocate. While many states allow you to exempt some or all of your retirement benefits there are others that require you to pay taxes on things like pension income and Social Security benefits. If you’re moving to a state with higher taxes on real estate and retirement income you could be setting yourself up for a perfect financial storm.

2. Your Budget

What your financial picture looks like now may not be anything close to what it will look once you retire. Working out a post-retirement budget can give you an idea of what you can expect in terms of your income and expenses. If you’re planning to purchase or build a retirement home, knowing how much you can realistically afford to spend can keep you from getting in over your head.

When you’re trying to create a working retirement budget, you need to be sure to include all your expenses and projected income. For instance, it’s important to anticipate the cost of your medical care if you haven’t reached Medicare eligibility age when you retire. If you’re thinking of waiting to apply for Social Security benefits you also need to know how this will impact your bottom line.

Related: How Much Do I Need to Save for Retirement?

The other question you’ll need to answer involves whether to finance your retirement home or pay in cash. If you’ve accumulated substantial assets then buying a smaller home in cash may give you a sense of security and put less strain on your monthly outflow. If you’re planning on taking out a mortgage loan, opting for a 15-year term will let you pay the retirement home off faster but it’ll mean more money going out each month.

3. Maintenance

The cost of owning a retirement home is more than just the mortgage, taxes and insurance. You also have to factor in the expense of maintenance and upkeep. If you’re in relatively good health, you may be able to take care of these things on your own but as you get older, you may find yourself shelling out more and more money for professional repair and maintenance services.

Buying a relatively newer retirement home may help you to avoid having to deal with certain issues right away. You may also consider moving into a housing community where these services are included for residents. Just keep in mind that these types of developments typically require you to join a homeowner’s association which usually carries a hefty fee. You may also be subject to specific rules and regulations about what you can and can’t do on the property.

The Bottom Line

Retirement is meant to be enjoyed but making the wrong move when buying a retirement home can put a damper on your plans. Doing your research before you start browsing property listings can help you to sidestep any major financial stumbling blocks.

Another way to make the decision-making process easier is to talk to a financial advisor. A financial advisor can help you assess your full financial situation and determine what decisions will align with your long-term goals. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and your goals. Then the program will narrow down your options to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo Credit: The Home Loan Arranger