A plan to meet housing needs is an important part of a retirement income strategy. A home provides an emotional anchor, providing daily comfort and shelter, memories, and nearness to friends and community. Homes are also a major source of wealth for retirees and near-retirees. Home equity provides between 45 and 75% of median household net worth when approaching retirement.
For a typical retiree, home equity is larger than the value of the accompanying investment portfolio. Expenses related to the home (property taxes, utility bills, home maintenance and upkeep) can add up to a significant portion of the overall household budget. The Center for Retirement Research at Boston College analyzed numbers for retired couples aged 65 - 74 in 2010 and found that housing expenses represented 30% of the typical household budget.
Joseph Coughlin, the director of the MIT Agelab, created three basic questions to identify quality of life issues for retirement. An essential part of answering these questions involves solving for the right type and location of housing.
Coughlin’s questions are:
- Who will change my light bulbs?
- How will I get an ice cream cone?
- Who will I have lunch with?
These questions illustrate how our lives will change as our bodies slow down and health issues or other aspects of aging make us less mobile. The questions focus on whether we can continue to live in and properly maintain the same home, whether we have access to a community that lets us continue to enjoy basic conveniences even if we may stop driving our own cars, and what will happen to our social lives and our opportunities to remain active as old friends also become less mobile or move away. Will we live in communities that keep these key aspects of quality living accessible to us?
For new retirees, any difficulty with answering these questions may still reside in the distant future, but the major life changes associated with retirement provide a good opportunity to reflect on the different possibilities and to develop a set of contingency plans.
Ultimately, one of the greatest dangers to quality of life in retirement is the risk of becoming increasingly isolated and having only television as a way to pass the time. On the emotional side of retirement, the housing decision may relate in large part to figuring out how to best answer these three questions over the long-term.
Because of its important connection to the emotional and financial aspects of retirement, it is worthwhile to spend time thinking about housing options and potential uses for home equity. As time moves forward, it is important to live somewhere with social connections, transportation options, and quality health care and long-term care services.
Back to the more immediate present, one needs to think about where to live, how long to stay there, and whether to move later in retirement. There are plenty of justifications for either staying put or moving early in retirement.
First, consider reasons for moving. These relate primarily to the changing emphasis of life priorities and life needs. For instance, empty nesters may no longer require a home as large as when there was a household of children. Large homes require more cleaning, maneuvering, heating and cooling, and possibly larger properties requiring lawn care. As well, children may have moved to other parts of the country, and new retirees may wish to be closer to their grandchildren.
For those who raised children, it may be possible to move to a community with less emphasis on school quality, which may lead to lower property taxes and an additional source of savings for the retirement budget. Moving to a state with lower taxes for retirees can also be another source of savings.
Retirees, obviously, are no longer constrained to live close to their employers. The reduction of need to remain settled in one location for children and employment may create unprecedented freedom to move elsewhere. This newfound freedom can create a whole new set of options about where to live that may have not been realistic in the past.
In addition, with more time to focus on hobbies and interests, moving may provide an opportunity to live closer to the types of places which can better fulfill these interests (such as to a college town or even near your alma mater, or to a warmer climate). Finally, the aging process will slowly reduce mobility, and moving can be one way to set a long-term housing plan in motion that will better support the opportunity to subsequently age in place and have quick access to important medical care.
That being said, most retirees will decide to stay put in retirement. In fact, evidence from households surveyed suggests that staying put is more common than you might believe. For instance, Richard Green and Hyojung Lee studied households using the 2006 – 2010 American Community Survey and found that the propensity to move peaks in an individual’s 20s and then declines until about 50, where it subsequently stays put at the lowest relative levels. Older individuals are not more likely to move and there is not an uptick in the rate of moving at typical retirement ages.
Retirees have developed family and community ties and friendships they do not wish to leave behind. Many also have significant memories and good feelings about their homes and wish to maintain the stability and familiarity those represent. The home can be a hugely important part of your emotional identity, and leaving that anchor behind really is not a viable option. If the home is paid off, owners tend to take pride in ownership and might feel trepidation about going through the whole process again. New technologies and the possibility of renovating the home can also make aging in place an easier endeavor than in the past.
The following table provides a summary of considerations for whether to stay or move in retirement:
Considerations About Whether to Stay or Move
· Diverse transportation options
· Access to quality health care
· Agreeable climate and community
· Access to family and friends; ability to maintain social ties
· Ability to Age in Place in one’s home
· Housing prices: what are the relative costs of homes
· Costs of living and affordability of new location
· State sales tax
· State inheritance tax
· Local property taxes and costs of municipal services
· Other state tax rules regarding retirement income sources like Social Security and inheritance tax