Real EstateReal Estate Tips August 4, 2021

3 Tips for Planning Home Ownership in Retirement

When you hear “planning for retirement,” you probably think about the financial preparation it will require to someday stop working. After all, you’ll lose the income from your job and will have to rely on retirement savings and maybe Social Security to pay the bills.

That situation does require some planning. You have to figure out how much to contribute to 401(k) plans or individual retirement accounts so you’ll have enough money to get by. You must calculate how many years you’ll be required to work and how long you expect to live. But there’s another aspect of retirement that requires planning, too: homeownership.

For most people not living with their parents, housing costs are their biggest expense. The average American spends about 30 percent of their earnings each month on a place to live, according to the Bureau of Labor Statistics. When your income drops in retirement, what will your living arrangements look like if your home costs almost a third of your paycheck?

It’s never too soon to address that question, so here are three tips for planning homeownership in retirement.


Decide on downsizing

If you live in a large house because you have a large family, you probably won’t need all that space when you’re in your 60s and beyond. Hopefully, your adult children will have moved out by then, and you’ll only need a spare bedroom in case they come to visit.

It makes sense to consider whether to continue keeping such a large house maintained and clean. It’s important to ask yourself if you’ll be up for caring for a large yard or garden. Downsizing might not only be cheaper, but also considerably less work.

Depending on your equity situation, you might be able to sell your current home and pay cash for a smaller one, eliminating a monthly house payment.


Manage your mortgage

If you decide to stay in your current home, you probably have some choices to make regarding mortgages. The plan for many homeowners is that by the time they retire, their house will be paid off, making the income drop manageable.

If your house isn’t paid off, you might consider paying it off. If you don’t owe very much on it, that might seem very prudent. But if by investing that payoff money instead, you can earn a rate of return higher than your mortgage interest rate, it doesn’t make financial sense. If you’re paying a 3-percent mortgage rate and the money in your retirement account is earning 10 percent, you’d lose money if you pull savings out to pay off the home.

If you have a ton of equity in a home, you might also consider a reverse mortgage, which allows homeowners to cash in that equity in exchange for deferring repayment until they move, sell, or pass away.


Look at locations

If you’re not too attached to your home or neighborhood to consider moving, you might want to think about moving far away. Sometimes, a willingness to relocate can make a world of difference in a retirement lifestyle.

The cost of living in places like New York City or San Francisco is enormous compared to other places. You can find similar-size homes in warmer-weather states for a fraction of the price. Some U.S. states also have no state income tax or lower sales tax rates compared to others. If you’re stretching dollars in retirement, there are places that are easier to do it.

If you’re feeling really adventurous, you could retire abroad. Places in the Caribbean, Central and South America, and Southeast Asia boast extremely low costs of living. Anywhere it’s much cheaper to live, your dollars will stretch further. Depending on how low the cost of living is, you might even be able to retire earlier by relocating.


The bottom line

For most Americans, housing payments eat up a third of a monthly budget. For the majority of homeowners, their house is also their largest financial asset. Given those facts, it’s just plain smart to plan your housing situation in retirement.



Founded in 1915, the Weidel family of companies has grown to encompass all parts of the residential and commercial real estate markets, including brokerage through Weidel Real Estate, real estate mortgages and finance through Princeton Mortgage Corporation, title insurance through Princeton Assurance Corporation, and real estate education and licensing through the Princeton School of Real Estate.