Your Residence Is Your Retirement

For many contemplating retirement, one’s future living arrangements is the most thought about – yet least acted upon – aspect of retirement planning. According to the U.S. Bureau of Labor Statistics even though housing is the largest average cost in retirement, older Americans move far less often than the general population. The home is the last bastion of the status quo, and many remain in their existing homes, unless forced to move due to failing health. Yet from a financial standpoint, this rarely makes sense. A house is generally a poorly diversified, cash flow intensive investment that historically only maintains a price commensurate with inflation. At a time when human capital is exhausted and financial capital is being decumulated, a house should be seen as a lifestyle choice, not an investment. Living in place is a consideration, but changing residence at retirement may be the better move.  

Financial considerations aside, where you live in retirement affects many other aspects of a happy post-employment life. Where you live influences your hobbies, social network, family life, and access to health care. In sum, your residence is your retirement, so you should treat this as a primary decision in retirement planning.

The good news is that, assuming there is some degree of retirement savings, retirees have many choices. Not only can you opt for a different geographic location (for example, South versus North), but you can also select a different housing structure (condo versus house) or new living arrangement, such as an active living community versus a traditional neighborhood. Financing a new housing lifestyle offers options as well: reverse mortgages, sale-leasebacks, and continuing care retirement community arrangements, are all possible funding approaches.

The challenge is you haven’t retired before, so it’s hard to envision how all this works. Since we best learn by example, perhaps studying the retirement arrangements of others will simplify the task. Below are three case studies of successful retirement moves, which offer a vision of the possibilities that exist. 

Oliver – The Mother-in-Law Cottage

Oliver and his wife moved to the Midwest while in their 40s to pursue his career as a professor. His wife died of cancer in her late 50s, and Oliver continued to work until his late 60s. In pondering his retirement as a widower, Oliver, an avid fly fisherman, came to realize that nothing was keeping him in the Midwest, and his daughter and family lived in fish-friendly Seattle. Housing was his biggest challenge – the Seattle real estate market is notoriously crowded. Oliver’s solution was what is colloquially called a “granny pod” or “mother-in-law cottage.” Because of the housing shortage, Seattle zoning laws allow families to build small housing structures in backyards and alleys of neighborhoods. With the proper permits, Oliver was able to build a small house in his daughter’s backyard, and he now divides his time between watching his grandchildren grow and perfecting his fly fishing casts. 

Carolyn – Small Apartment and Big Boat

Carolyn and her husband created a successful business in Duluth, Minnesota – so successful they were able to retire early. They wanted to relocate to somewhere with warmer weather than Duluth, so they moved to the Florida Keys. They fulfilled their retirement dream by acquiring a small apartment and a big boat. Living primarily on their boat, they enjoyed retirement by sailing the Keys. But when Carolyn’s husband died unexpectedly eight years into their storybook retirement, Carolyn found herself in her mid-60s facing a new phase of life in retirement. She didn’t envision the Keys as where she wanted to be a widow for 20 plus years, so she decided to move to a condo upstate. Wanting to pay off the boat and finance her new condo, she secured a “HECM for Purchase.” A Home Equity Conversion Mortgage (HECM) for Purchase is a reverse mortgage that allows a senior to purchase a new residence using loan proceeds from the reverse mortgage. This arrangement allows Carolyn the flexibility to decide if and when to tap into her home equity without taking on the risk of a future foreclosure. The second act of her retirement has begun. 

Tom and Marge – Continuing Care Retirement Community   

Tom was an FBI agent and Marge was a teacher. They were able to retire from full-time employment comparatively early, and they wanted to relocate from their last assignment in Chicago. Their solution was to travel around the country, in part to see the sights and in part to decide on a retirement location. Once they landed on eastern North Carolina as their choice, Tom found a job teaching part-time at a community college. They bought a house and lived there for 15 years. In their late 70s, frailty concerns became an issue. They researched their options and ended up selling their house and making an up-front payment to a Continuing Care Retirement Community (CCRC). This gave them a safe, and pleasant location to age in place. For three years they enjoyed their two-bedroom apartment, making new friends, and aging gracefully. When Marge died at age 80, Tom moved to a one-bedroom apartment in the same building and lived there for several more years. In his final days, because he lived in a CCRC, he had easy access to needed health services, and he died where he lived. Tom and Marge were my parents. 

A Checklist For Your Retirement Living

Your retirement journey will be unique, but if you’re like most retirees, where you live will influence that journey. Particularly if you envision a change of location when you retire, there are some fundamental considerations to keep in mind. Topping the list are geographic location, residence arrangements, healthcare access, financing, and contingency plans. 

Geographic Location – An old adage cautions “don’t retire where you vacation.” Although this warning may be overstated, there is a kernel of truth in that retirement is more than just locating where you enjoy playing. While it may be a great stress reducer to sit at a tiki hut on the beach, an ocean front property may not be ideal for retirement living. That said, many retirees do include their hobbies and recreation in their deliberations. Tom and Marge chose North Carolina because they loved to golf. Carolyn and her husband were living the dream on their boat in the Keys. And proximity to the grandkids was a big plus for Oliver. Indeed, for many retirees, watching the grandkids grow is a favorite pastime.

Choice of location can also be influenced by tax issues. In part due to the limits on the federal state and local taxes (SALT) deduction and spurred on by work-from-home technologies, income-tax-free states have seen an explosion in affluent pre-retiree transplants. These families are moving up their plans to relocate to tax-friendly jurisdictions.

Residence – You don’t need to look further than The Villages retirement community in Ocala, Florida to see how living arrangements are a key retiree consideration. The county population for The Villages has increased more than 54 percent since 2010. Call it cookie-cutter or call it convenient, this “active adult community” for individuals age 55 and up attracts many seniors—with a current population of about 80,000. This birds-of-a-feather-retire-together concept has been well-tested in the U.S. The original active adult community, Arizona’s Sun City, is now more than sixty years old.  

A competing model, the CCRC, is flourishing as well. This approach involves a decision that is for life, but in return it eases the residential issues related to aging. As your needs change, you can progress from independent living to assisted living to skilled nursing. Both the CCRC and active adult community models offer community, access to medical care, and ample conveniences.

By moving to a CCRC, Tom and Marge were able to better enjoy the later part of their retirement because the living arrangement relieved them of the challenges of home ownership and cooking, and it allowed them to also shift their residence as their needs changed.  

Health Coordination – A consideration related to physical residence is access to health care. After losing her husband, Carolyn realized that a boat on the Keys was very limited in terms of access to medical care and moving to a condo on the mainland offered more options. Even more efficient was Tom and Marge’s move to a CCRC, where they were literally within walking distance of the hospital. Even Oliver improved his situation when he moved next door to his daughter. As a widower, he now has family nearby if he needs help with doctor appointments. 

Financing – Because retirement involves decumulating assets, a significant consideration is funding any planned change in residence. If the retiree has no home equity or savings, options are limited, and Medicaid planning may be required. If, however, the retiree has home equity, many options exist to finance a change in residence. In general, for a recent retiree, taking out a new conventional mortgage is both impractical and a financial burden. There are better ways to free up or leverage existing equity.

Oliver obtained a swing loan secured by his home in the Midwest to finance construction of his “granny pod” in Seattle. When he subsequently sold his house, he was able to pay off the swing loan, and free up cash flow for retirement income. With Carolyn, her HECM for Purchase provided significant flexibility in managing her future cash flow needs. She used some of the HECM loan proceeds to pay off the remaining balance on her boat, and she now has a line of credit that she can tap if she needs to increase her retirement income. A reverse mortgage can be expensive, but for Carolyn it is worth the cost because it protects cash flow without risking foreclosure. Finally, as for Tom and Marge, with the sale of their house they were able to pay the one-time deposit on their CCRC contract, and free up cash to supplement their CCRC monthly fees.    

Contingencies – Retirement is rarely a straight line from leaving work to dying years later. This is particularly true when thinking about couples. All three of the above stories have a common element – they involved marriages. In Oliver’s case, his wife died before retirement; with Carolyn her husband died early in retirement; and with Tom and Marge, one spouse died later in retirement, but still years before the survivor passed away.

When planning for retirement, a couple must deal with the reality that spouses rarely die at the same time, and that the death of a spouse dramatically affects the survivor’s retirement plans. It took a decade, but once Oliver retired, he moved thousands of miles away. Carolyn, already in retirement, transitioned from a boat to a condo. And Tom simply changed apartments, but even this transition was lifechanging for a man in his 80s. Contingency flexibility should be part of the retirement plan because one way or another change is going to happen.