Retirement Housing: Renovate or Relocate?

Retirement is supposed to be all about rest and relaxation, but lately the term “R&R” has taken a new meaning for retirees thinking about their living situations during their non-working years: Renovate or Relocate?

Whether you are planning to take on a home improvement project or thinking about packing everything up and shipping out to a different city, state or country, the decision to either renovate or relocate during retirement can have significant lifestyle implications. When weighing this decision, you have to think first and foremost about how long you plan to stay in your home and how that fits into the kind of lifestyle you want to live, says Lillian Meyers, a Certified Financial Planner with Meyers Financial, a wealth management firm based in Sonoma, Calif. Meyers, who has helped several clients with this kind of decision, says frailty plays a big role in deciding whether to renovate or relocate. “Staying in your home, can you make it liveable for as long as you can live there?” she says. “Renovating has to do with how much longer you want to live there—do you plan to live there another 10 to 20 years, and is that possible or not?” Home Makeover: Retirement Edition Baby Boomers (Americans born between 1946 -1964) spend more on home renovations than any other age group, according to a report by Merrill Lynch and Age Wave released this year. On an annual basis, Baby Boomers account for 47% of the home renovation market, spending $90 billion per year, the report noted. But when it comes to the scope of their renovations, many Boomers aren’t necessarily taking on top-to-bottom overhauls of their homes. Rather, many have scaled back their project plans in the range of  $25,000 to $35,000, said Kevin Anundson, president of the National Association of the Remodeling Industry, in a recent article from The New York Times. Many renovators are looking to remodel their bathrooms rather than take on large scale projects, he said. Things like grab bars around the toilet or in the shower can be simple fixes to help homeowners live independently at home as they age, while also prolonging the need to move into somewhere like an assisted living facility, suggests Meyers. “Those are things you may need to do so as not to fall,” she says. “You’ll have to ask yourself what do you need in your home to make it a nice, comfortable, safe and beautiful place to live?” But if you’re the restless type that doesn’t like to stay in one place for long, then relocating during retirement might be better suited for your plans. Flying the Coop It’s not uncommon for retirees to relocate during their retirement, whether it’s to another part of town, a different state or overseas. And it doesn’t matter whether you’re age 65 or 25; moving is a big commitment and requires meaningful research to make sure that the place you’re moving to fits well with your future plans. “You have to make arrangements for how long you’re going to do this and is this the ideal place?” advises Meyers. “In any country or state that you’re moving to, think about the strong factors that are drawing you to wherever you’re going.” There have been countless studies and reports that analyze the best cities and states for retirement. For example, the Milken Institute each year releases its “Best Cities for Successful Aging” report, which evaluates cities across key metrics like quality of health care, community engagement, transportation, cost of housing and other living expenses. Bankrate.com also compiles rankings on the “Best and Worst States to Retire,” analyzing areas based on similar categories, also taking into account local tax burden, weather and crime rate. While analyses such as these don’t necessarily represent hard truths that certain destinations are worse than others, they are meant to be used as additional resources for retirees to call upon when thinking about potentially relocating during retirement. “Soon-to-be retirees should focus on what factors are most important to them and then consult rankings like this to see what cities best fit their criteria,” said Bankrate.com Research and Statistics Analyst Chris Kahn. Whether you’re thinking about relocating or renovating during retirement, regardless of what decision you make, there are financial implications associated with both options. Renovating vs. Relocating: Ways to Pay There is a multitude of questions a person has to consider in order to know what’s the best thing to do when deciding either to renovate or relocate, says Meyers. “Whatever you are going to do, it’s going to cost money,” she says. “You have to find out how you’re going to fund what you want to do and where to go with that—so you need to look at your assets and the capabilities of those assets.”

• For one, you might want to consider if your home is paid off, or if you have enough income to mortgage it again to afford something like a renovation project, Meyers says.
• If relocating is your decision, then it is important to consider if you will be downsizing or if you can afford your new location.
• You could also dip into retirement assets like a 401(k) or an IRA to fund a home renovation project, but you’ll have to pay tax on the income you access from these assets, which could put you in a higher tax bracket, said Jared Snider of Exencial Wealth Advisors in Oklahoma City, in the NY Times article.
• A reverse mortgage is another financial product that can help retirees both stay put and pay for home renovations. These loans, most of which are Home Equity Conversion Mortgages (HECMs) federally-insured by the Federal Housing Administration, allow homeowners age 62 to unlock their home equity and convert it into tax-free cash. The loan proceeds can be used for a number of purposes, whether it’s paying off an existing mortgage, clearing up medical expenses, embarking on a home renovation project, or however you may so choose to spend these funds.
• Reverse mortgages can even be used to buy a new home via the HECM for Purchase product. The HECM for Purchase allows eligible homeowners to obtain a reverse mortgage and buy a new residence that better suits their needs all within a single transaction. The advantage of this product is that the new home purchase eliminates the need for monthly mortgage payments, using funds from the sale of the old home and other sources of income, such as private savings or other financial assets, which are combined with the reverse mortgage proceeds. This home buying process leaves you with no monthly mortgage payments, however, borrowers are still required to remain current on property taxes and homeowner’s insurance payments associated with the property. Failure to do so puts the reverse mortgage borrower at risk of default, which could then result in foreclosure.

When determining the best way to finance your housing decision, it’s important to understand your overall financial profile and to have a good grasp of your retirement plan.  The Boldin Retirement Calculator can help you organize your finances and assess different options.