Homeowners have their own Retirement Opportunities Not so for renters. One option is to sell your home, move to a smaller, cheaper one (perhaps in a cheaper neighborhood or state), and bank the profits. But that strategy isn’t for everyone.
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Learn how retirees have leveraged the homes they already owned to achieve financial security now and sound estate planning for future generations. A lifestyle he had struggled to achieve for so long.
Retirement Planning: Whether you’re planning for retirement, dealing with a major life event, or simply want to make smarter financial decisions, a financial advisor can provide the expertise and guidance you need. Here are some examples: Compelling reasons to consider a financial advisor, even if you’re not wealthy.
Financial planners approach retirement differently
Stephen Ross, CFP, Limestone Financial Grouphas spent 20 years helping retirees “maximize happiness over wealth.” Ross says successful retirement requires “a completely different mindset, from accumulating wealth to working backwards.”
In most cases, that mindset brings two concerns to the forefront.
“When it comes to retirement planning, the couples and families I work with have two main goals: maintaining their lifestyle income needs and ensuring they achieve their family planning goals,” says Ross, “but there is no one-size-fits-all standard that applies to all retired couples or scenarios.”
Ross said that whatever the goal, the level of planning and preparation will greatly affect the chances of success in achieving it.
“Given the uncertainty of the future, thorough preparation provides more time to consider risks and opportunities, leading to smarter choices and options that help control the environment,” he said.
For many retirees, housing is their biggest expense and their most valuable asset, so the decision to downsize is a highly personal choice that can make the perfect retirement happen or become a painful regret.
For one of Ross’ clients, maintaining the status quo offered the best possible outcome for both parties.
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Downsizing to free up capital is (for some) a perfect move
Many retirees sell their family homes and use the extra income to buy or rent smaller, more manageable homes for less, then invest the profits in a higher quality retirement lifestyle.
But downsizing isn’t the right choice for everyone, both from a financial and lifestyle standpoint.
“You need to evaluate the risks and opportunities before you impulsively jump in,” says Ross. “I’ll share examples from real situations with clients and why the standard formula doesn’t apply when selling a home in retirement with uncertain life expectancy.”
Retiree starts new relationship in old home
Ross told the story of a wealthy 76-year-old retiree living in New Jersey whose wife died nine years ago.
“He retired from work at age 72 and is in a committed relationship with a wonderful woman he met on Match.com,” he said. “Instead of selling his house, downsizing, or moving to a state with a lower cost of living in retirement and living in a smaller home with less upkeep and maintenance, he chose to remain in his Northern New Jersey home.”
Unlike many retirees, Ross’ clients had the freedom to choose: They were able to fund their retirement without selling, and so they could decide whether to downsize based solely on their wishes.
“With or without the additional funds from the sale, he had enough assets to cover his retirement expenses with a carefully planned income strategy that met his lifestyle needs,” said Ross, who agreed with his client’s decision. “What if the relationship didn’t work out with his new partner? Keeping the home would allow him to live there within a two-hour drive of his adult children and grandchildren, plus his partner lives in and near Westchester.”
Financial security for himself and his descendants
While staying put met all of the lifestyle criteria Ross listed, choosing not to downsize was also the financially sensible choice.
“Owning a home as an asset gives you exposure to the potential gains and returns that can come from owning an investment,” Ross said. “Historically, performance has been in line with the stock market, so it should rise further or be in line with equities.”
Ross said financial security is one of two concerns all of his clients share — the other is estate planning. The IRS will collect taxes on a home that has appreciated in value over time when you sell it, but not when your heirs sell it after inheriting it.
“The final benefit is that the acquisition value is increased upon the owner’s death to determine the capital gains payable by the beneficiaries when they ultimately sell the home,” Ross said. “As a result, the beneficiaries are taxed at lower capital gains rates, increasing the net amount transferred as an inheritance.”
This two-pronged strategy helped Ross’s 76-year-old retired client achieve peace of mind, greater control, and independence in his relationships in retirement.
“It worked out well because it also protects the adult children from their father becoming a burden on others as he grows older,” Ross said.
But in the end, the retiree’s strategy was only right for that retiree.
“Personalized planning is important because each retirement life is unique and driven by a person’s preferences and future variables,” says Ross, “and you can’t compare one life to another or compare it to another.”
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This article was originally published on GOBankingRates.com: My client didn’t downsize after retirement, and why keeping his home was the smartest way for him to spend his money
