Should You Plan a Move Before Retirement?
How to handle a sale and purchase of a new home and move before retirement?
Q: I used to listen to you on the radio in Atlanta and I’m hoping you can help me now. My husband is 65 and I’m 63. We live in a home that’s paid for, but we both know we can’t handle the stairs much longer. I think the home might sell for approximately $400,000.
We found another property we’re interested in that costs $425,000. Our emergency fund has $22,000 in cash. My husband will be retiring in October and I am already retired. Together, we will have approximately $3,500 to $4,500 per month to live on for day-to-day expenses, property taxes, insurance, and other things. We also have a Roth IRA worth $330,000.
How should we handle the sale and purchase of another home? We don’t know where to begin and don’t want to make a big mistake that ends up costing us more than necessary. Looking forward to your reply.
Selling, Buying, Renting: What to do?
A: It’s tough to look in the mirror and realize that when you’re older, your body may not be able to do the same things in the same way as when you were younger. At the gym last night, a 60-something acquaintance remarked that he doesn’t think of himself as being 60 “until I look in the mirror.”
Even though your changing physical needs may be painful to acknowledge, you’re smart to prepare for the future. Unless surgery is an option, your knees probably will get worse over the years. Moving to a single-level home that can accommodate a wide range of physical needs and abilities in your 60s may allow you and your husband to live longer on your own.
So, what to do now? You have a few options. You can sell your home and use the proceeds (minus the cost of sale) as a down payment on the new home. Or, you can keep your home as a rental and buy a new, smaller home on one level as your retirement home. Or, you can sell your home and rent or move in with family members.
The Costs of Selling and Buying
Let’s look at selling and buying first. If your home sells for $400,000, and you pay a 6 percent commission, some closing and moving costs, you’ll probably wind up with about $370,000. Your new home will cost $425,000, which means you have a $55,000 differential. It will be difficult to get a loan for that amount, so you might want to take out a larger loan of $100,000 or even more.
Mortgage lenders are reluctant to do small loans, because they may not make as much money on them. They do all the same work for a smaller loan as for a larger one, and sometimes more, for very little profit. Which is why taking out a slightly larger loan may be easier and has the added benefit of boosting your emergency cash, which you’ll need as you head into retirement.
A $100,000 loan at 5 percent will cost $1,071 per month, including your property taxes and insurance premium. That should be affordable if you have income of $3,500 to $4,500 per month. You will also have something like $75,000 in additional cash to invest, just in case you need it. You could also make a one-time prepayment of $75,000 and shorten the life of your loan substantially. In some cases you can ask your mortgage company to restate your mortgage to keep it at 30 years (or the time remaining on the loan) but lower the monthly payments. That should bring your monthly loan payment down significantly.
Additional Income in Retirement with a Rental Property
A riskier second option: If the rental market is strong in your area, you could keep your current home as a rental property to help bring in additional income in retirement. You could withdraw funds from your Roth IRA for the down payment, and take out a mortgage with your husband’s income. That might be too much financial risk at this point in your life, but it is an option.
Considering Renting in Retirement
Finally, why buy? Or, why buy now? You could sell your home and rent a smaller, single-level home for a year or two while you wait for home prices to stabilize or moderate or even drop off a bit. You can just rent a smaller condo that might cost less than what you’d pay for a mortgage and would leave you with the full use of your funds. The $375,000 you’d net after your sale would double your retirement cash, and potentially could provide you with enough income to offset or even cover your monthly rent, depending where you live.
Don’t Forget It’s Hard to Downsize
The biggest problem might be packing up your home. We’ve lived in our home for nearly 30 years, and the thought of packing up a lifetime of stuff is daunting. Still, consider this a time to give away what you won’t need or can’t use in your new home. Decide ahead of time what you’ll need and what you can give away. Then, invite your relatives and friends to select a piece of two before you start packing. Once you’ve finished packing what you need and want for your new home, find a worthy organization and donate the rest.
Moving is emotionally draining at any age. If you have children or friends who offer to help, accept it. If nothing else, you’ll build one last set of memories in your home.
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