Moving During Retirement
Some people stay in place when they retire, while others buy a second home or relocate entirely. If you’re thinking of buying a new home, should you plan the purchase before you stop working, or is it possible to get to a mortgage after you’re retired?
Getting a Mortgage on a Fixed Income
Plenty of retirees can qualify for a mortgage while on a fixed income, but it can be more difficult. It’s easier if you’re looking to buy a primary residence, as a vacation home could be more of a challenge if you still have a mortgage on your main home. In this scenario, you’ll probably need a higher down payment and will likely be subject to more restrictive income and credit criteria.
If you’re no longer working, a lender will typically ask for documentation of recent Social Security, pension income, dividends, and interest payments. If you’re drawing income from retirement assets, you’ll need to provide documentation for both regular withdrawals and statements demonstrating your entire net worth. This is to show that you won’t run out of income any time soon. Your lender will divide about 70% of the value of your assets (minus what’s needed for your down payment and closing costs) by the number of months of the mortgage to ensure you’ll be able to pay off the loan.[ref]Kiah Treece and Rachel Witkowski. Forbes. June 21, 2021. “How To Get A Mortgage After Retirement.” https://www.forbes.com/advisor/mortgages/get-a-mortgage-after-retirement/ Accessed June 24, 2021.[/ref]
Things to Consider Before Making a New Home Purchase Decision
As you develop plans for your retirement, it’s important to consider the costs of mortgage payments, property taxes, homeowner’s insurance, maintenance, and repairs. Buying a second home can cost just as much or more than maintaining your first home, and that can be a lot to take on in retirement. Talk to your financial advisor to evaluate your financial picture and determine ways to maximize your assets to plan a retirement lifestyle that you can enjoy and afford.
For example, instead of buying another home, consider renting wherever you’d like to spend your summers or winters. Renting may end up costing a lot less, plus offer the flexibility to travel or try out different homes each year at your favorite destination. At the very least, it’s a good idea to rent until you decide if you definitely want to buy a second home in that location.[ref]Bob Carlson. Retirement Watch. March 16, 2020. “Should you buy or rent your winter home?” https://www.retirementwatch.com/buy-or-rent-your-winter-home. Accessed June 24, 2021.[/ref]
Beyond the question of what you can afford, consider if a move would really give you the lifestyle you desire. While another location may be beautiful, many people regret leaving friends and family with whom they often spend time. Before relocating, think about how you’ll spend your days, with whom you’ll spend them, how difficult it may be to visit family and if you’ll have easy access to medical care. And finally, ask yourself what you would miss most if you moved away – and how important those things are to you.[ref]David Rae. Forbes. Oct. 10, 2018. “8 Questions to Help You Decide Whether to Move in Retirement.” https://www.forbes.com/sites/davidrae/2018/10/10/move-in-retirement/?sh=6c1ff45c4ef4. Accessed June 24, 2021.[/ref]
Also, consider whether downsizing is a good idea for your lifestyle and budget. After all, you don’t have to move far away, but you could downsize in your own community. This offers several advantages. You can cash in on the equity of a larger home and use that money to help fund retirement expenses. Moving to a smaller, more manageable property can reduce the time (and/or money) you spend to keep a larger home cleaned, repaired, maintained, and insured – with the added benefit of lowering your property tax bill. Plus, you’d be able to see your friends and family and maintain the same routines you currently enjoy.[ref]Jill Cornfield. CNBC. Sep. 8, 2020. “‘This gained us 8 to 10 years of not having to work’. Here’s what you need to know about moving in retirement.” https://www.cnbc.com/2020/09/08/escape-winter-save-money-plan-for-aging-why-people-move-in-retirement.html. Accessed June 24, 2021.[/ref]
However, downsizing does involve going through all of your stuff and deciding what to keep. Seasoned downsizers say it’s best not to rush this process. Start the process a year or so before you plan to move, and take it room by room.[ref]Liz Taylor. Pods. Sep. 14, 2020. “Relocating after retirement? Smart moving tips from retirees who’ve done it.” https://www.pods.com/blog/2020/09/retirement-relocating/. Accessed June 24, 2021.[/ref] Also recognize that your children may not want your discarded items. A recent study found that the list of things adult children tend to pass on include sewing machines, film projectors, porcelain figurines, decorative plates, silver-plated objects, sterling and crystal, fancy dinnerware, linens, and even printed photographs.[ref]Raymond James. March 17, 2021. “10 Things Your Kids Don’t Want When You Downsize.” https://www.raymondjames.com/commentary-and-insights/lifestyle-technology/2021/03/17/10-things-your-kids-dont-want-when-you-downsize. Accessed June 24, 2021.[/ref]
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At Beacon Capital Management, we believe having peace of mind in retirement, requires considering all of your options, and creating a plan. If you like this article, check out the Beacon Retirement Strategies Podcast, where we talk to some of the sharpest and most professional financial advisors in Nashville. We understand that retirement planning can feel complicated and overwhelming, so we take a few moments to break down some of the more complex parts of retirement so you can have a better understanding of how they apply to you.