Showing posts with label how to afford your retirement. Show all posts
Showing posts with label how to afford your retirement. Show all posts

Wednesday, November 30, 2022

Financial Planning BEFORE Buying a Retirement Home

 Most people look forward to the day they can retire and move to their dream location.  The problem is that the perfect place for retirement means different things to different people.  Do you want to stay in your current community and, perhaps, just downsize to a smaller home or a condo?  Do you want to move to a new community where you have always dreamed of living ... a small village, a beach town, or into the heart of a big city?  What about living in an active adult over-55 community?  Or, if you have chronic or serious health problems, you might want to consider moving to a CCRC, which is a Continuous Care Retirement Community. In a CCRC you begin by living in an independent living cottage or apartment, but are assured that you will be cared for if you later develop debilitating physical or mental problems.

There are so many good choices for retirement, how do you decide which is the right choice for you?

Visit as Many Communities as Possible

Even if you think you want to stay in your current area, try visiting a variety of housing choices in your community.  Go look at a local active adult over-55 retirement community, a CCRC, and a few smaller homes or condominium complexes.  See if one of them seems like a good location for you to spend the rest of your life.  If you aren't satisfied with what you find, broaden your choices.

If you are thinking about moving to another city, visit it whenever you can, years before you actually retire there.  Become familiar with the housing choices, the local businesses, and the types of activities you plan to enjoy after retirement.  You might even subscribe to the local newspaper online or see if there is a community newsletter.  Get a feeling for the types of homes available and how much they cost.

The more you know about your choices, the more likely you are to choose a home which will please you and meet your future needs.

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Check Out the Important Stuff

No matter how much you think you would love a community, make sure you ask all the important questions.  You need to know how much you would pay in property taxes, homeowner's or condominium association dues, and property insurance. What about public transportation if you become unable to drive? If you are moving to a different part of the country, ask about things like utility bills.  A home in the desert may seem affordable, but how much will you pay in utility bills?  Are solar panels an option?

You also need to find out what services are available in the community and where they are located.  Remember that, as you age, you will not be young and healthy forever.  How far away is the closest hospital?  How many doctors are in the area?  What type of medical insurance will they accept?  

If you are planning to work part-time after you retire, check out the availability of jobs in the area.  You do not want to move to a remote community, far from hospitals and businesses, which would require you to drive long distances in the future.   

While you are at it, learn as much as you can about retirement planning so you know you can afford to live in your preferred community.  You can find a good resource here:  "How Much Money Do I Need to Retire?"(Ad)

Put Together a Budget

Before finalizing your plans, you need to work out a realistic budget based on the income that you know you can rely on in retirement.  How much Social Security will you receive?  What about a pension?  Will you have a fixed income from an annuity or investments in your retirement savings account?  

Although it might be nice to have a little additional income from a part-time job for a few years after you retire, you cannot count on having that income for the rest of your life.  Plan a budget that you can maintain even without the part-time job.  Then, you can use any extra money you earn for some of the things you would like to do in the early years of your retirement, like traveling, or buying a boat or RV.  The extra money could also help you avoid spending down your retirement savings in the first few years after you quit your full-time job, so you have more money to support yourself later.

If you are part of a couple, make sure you also put together a budget based on the income you would have if either one of you dies.  I have known people who could barely pay for food and medical expenses when they no longer had the Social Security income from a spouse to help cover all their bills. Many people forget that when you lose your spouse your income will drop, but your house payments, utility bills, car payment, debts and some other expenses will not be cut in half.  Set up a budget with enough room in it that you are not financially devastated if you lose your spouse.

Don't Forget the Cost of Moving Somewhere New!

If you are moving to a new place, you need to be realistic about how much you will spend in closing costs on a new home, any changes you might want to make to the house, appliances you may need to purchase, and the cost of moving.

Depending on how far away your new home might be, a mover can be quite expensive.  You should get a quote on what it would cost to move everything in your home, or just the items which are most important to you.

Personally, I have known a few cases where people have decided to sell their furniture rather than move it, and then they replaced the furniture when they got to their new location.  One couple I know packed up their two cars with all the personal possessions they could carry in their vehicles.   They also mailed a few boxes of belongings to a friend in their new community.  Then, they drove across country to their new home and purchased everything they had not been able to fit into their cars or the mailed boxes.  They were able to bring with them their clothing, books, photos, artwork, computers, important papers and even a few lamps, small tables and knick-knacks.  They saved thousands of dollars in moving costs, and used the savings to buy new furniture when they moved into their retirement home.  

That may not be the right choice for everyone, especially if you have some large family heirlooms you want to keep.  However, it was a smart idea for them and is something everyone should consider as a possibility.

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Talk to Your Financial Advisor

Everyone should discuss their options with a financial advisor before they retire.  There may be surprises you are not expecting.  For example, you need to know how much you will be paying in Medicare premiums and any Medicare supplement you purchase.  Will these bills cost more or less than your current medical insurance premiums?  What about your co-pays and deductibles under your new Medicare plan?  You should set aside some money every year to cover these.  You may also want to consider getting a Medicare Advantage plan which, in most cases, is less expensive than paying for original Medicare, plus a supplement, plus a drug plan and any other supplements you may want, such as a dental or vision plan.  Medicare Advantage plans often cover all these extras with much lower premiums.  However, the downside of these plans is that your are limited in which doctors you may use, and you generally need a referral from your primary care doctor before you can go to a specialist.  

You want to make sure you have considered all the possible expenses you could have.  If you are unsure what you need to do to build a lifetime retirement income, you will find a good resource here: "Don't Go Broke in Retirement." (Ad) The book will be helpful in making sure you are well-prepared for this new phase of your life. 

You also need to know about the Required Minimum Distributions from your IRA, once you reach age 72.  How much money will you be required to take out of that account each year?  Are you going to plan to use the money from those required withdrawals for living expenses, or put it aside in a savings account for an emergency? You are required to withdraw it from your IRA, but you are not required to spend it immediately.  As you remove money from your IRA, you should try not to take more than required. If you do, what effect will that have on any interest and dividends accumulating in the IRA?  You want to feel assured that your money is likely to last the rest of your life, especially if you need it to support your monthly expenses.

A financial advisor should be able to either put your mind at ease about the future, or help you know if you need to make revisions to your future plans.  Either way, you want to be able to choose your future retirement home with the confidence that you have done everything possible to make the necessary financial preparations to have a comfortable retirement.

One option many people are discovering to earn extra money in retirement is to open a small home business.  They might do tutoring, give piano lessons, become a tax preparer, or almost anything that appeals to them.  Some people, like me, are opening small home businesses such as my Etsy store, DeborahDianGifts:

Whatever you decide to do to supplement your retirement income, it is important to realize that Social Security rarely provides all the income you will need in retirement.  You need to plan well in advance how you will support yourself.

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Photo credits:  Morguefile, Amazon book covers and DeborahDianGifts on Etsy