I think it came as on off-handed comment from my wife Tracy on the way to the coffee shop after church, on one of those rare weekends over the holidays with the whole family in the mini-van. Something along the lines of, “Those new luxury townhomes in downtown Valpo sure are beautiful.”
“You can’t move from our house,” said the daughter who’s trying to move four hours away for college. “Yeah” said the daughter who lives in Indy, “I know you guys will never move from our house, it’s like who you are.”
The disengaged 15-year-old even managed a rare look up from his phone, “Totally not happening.” The son-in-law had to add, “No doubt, why would you guys ever move?”
And just like that, the jury of urchins apparently sentenced me to life in Boone Grove, Indiana. The truth is, we do have a great house. Tracy and I rented throughout our 20s and then built what at the time felt like our dream house in our early 30s.
Now the house has entered the front end of the 20-year maintenance cycle a little early (it’s 18 years old), and the place is bleeding me a bit. New furnace, new AC, new water softener, a roof two years ago. Every homeowner knows this drill.
And after raising a bunch of kids, including some exchange students, we are in the middle of some slightly overdue bathroom update projects. Sometimes a life sentence seems like a long time, and my wife and I yearn for something newer.
Which is why I understand why I am having more conversations nowadays with my retired and soon-to-be retired clients about buying new homes. So much, in fact, that my Oak Partners team has developed a very specific approach toward counseling clients through this process, and planning on how to engineer the deal. Here’s a couple of tips.
The finances of retirement are all about cash flow and liquidity, and new houses are neither liquid nor cheap. One of the nice things about owning a home for 20 or 30 years, is chances are the carry costs, meaning the mortgage or lack thereof, is low. The regular maintenance process — cutting grass, cleaning gutters, etc. — is also likely routine and cost efficient.
Bringing a mortgage back into the family finances, and sometimes HOA dues, can have serious impacts on retirement cash flow. It’s very important to understand all the scenarios on how lifestyles could be impacted.
Also, be forewarned. There is a whole class of builders who know exactly what couples in their late 50s to 70s want in a new retirement home. One level, multiple small guest rooms, lots of entertainment space, modern floor plan and conveniences, maintenance-free exteriors and upkeep plans. They also know exactly the price points most couples will stretch to afford. Before clients even go look, I tell them “You’re gonna to love it; we still need to do the math and make good decisions.”
Here’s a hint, it’s going to cost more than the budget, so be ready.
Lastly, have a plan. There are a number of moving parts in the equation. Equity in the current home, staging the sale of the current home, the new home that costs more than expected and the big IRA or 401(k) account sitting there looking like a solution.
In my experience, ripping into retirement assets to make the home purchase work is rarely a good idea. There are likely to be tax consequences, and sometimes Medicare premiums are impacted as well. The best advice I can give is sit down with a dispassionate, third-party advisor who is not connected to the process and make a plan.
And if the numbers don’t work, that’s OK, it’s only a life sentence where you are and at least they know where to come back for holidays.
Opinions are solely the writer’s and are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing involves risk, including loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at [email protected]. Securities offered through LPL Financial, member FINRA/SIPC.