Should You Buy That Retirement Home Before You Retire?

Are you buying a retirement home? When should you do it? Despite long-term intentions, purchasing a retirement home too early could be shortsighted. Whether in your 30s or 60s, weighing the pros and cons objectively before buying a retirement home is essential. While you’re still working, you may be tempted to buy your retirement home.

There are several reasons why people invest in retirement homes before they retire: 

  • The fear of missing out: When investing in a home, fear of missing out can often drive the decision to purchase. If you’re convinced it’s a ‘really good deal’ or if values will skyrocket, you may not be able to afford it in retirement. 
  • There are many ways to justify the purchase of a vacation home: permitting ourselves to purchase something we want—but don’t need. Even if the investment is a stretch financially, a vacation home may seem like the perfect reward for all the long hours. Imagine how much we’ll save when we retire here!
  • You’re ready to retire, just not financially: For those nearing the end of a long career or early retirement, the day you can finally hand in that ID badge cannot come soon enough. If you need to keep working until Medicare or build more savings, buying your retirement home early can help you feel closer to retiring. Your retirement date could be extended if you do not plan carefully.

Should you buy a retirement home before retiring?

Financial planning for retirement is essential, but sometimes even the best-intentioned actions can backfire. Consider these potential downsides before buying your next ‘forever’ home.

Over time, your tastes will change.

How does your style differ from five, ten, or fifteen years ago? Maybe not. Even if you plan to sell your home, you may need significant renovations if you have owned the house for a long time.

Despite your willingness to undertake a renovation, not all aspects of a home can be changed. Location plays a particularly important role in this regard. The perfect escape from day-to-day stress may be a vacation-retirement home in a sleepy beach community. When you retire, you may find this setting a bit lonely or lacking in activities to keep you busy.

The needs of retirees change as they age.

Retirees require less space than they did in their working years, but the area can also change. The number of stairs (if any) and the location of the master bedroom on the first floor become more critical. Your wish list may no longer include a big yard or a private outdoor space. 

Americans are increasingly moving from rural to urban areas. Often, retirees seek a more convenient lifestyle and better access to everything from medical care to social activities. The priority of pre-retirees looking for a second home and future retirement setting may not align with this.    

A living situation where an association handles maintenance and upkeep can benefit retired individuals. Getting these physical demands done on your own becomes more challenging as you age. Additionally, this arrangement allows people to travel and enjoy themselves without worrying about what’s happening back home.

In your 40s or 50s, proximity to quality medical care may not be on your radar. People with severe conditions should have access to the best care at a specialized facility.  

Social interaction and stimulation are another significant changes between working years and retirement life. There is even a link between loneliness and Alzheimer’s disease. You probably interact with people constantly at work as a requirement of your job. A social network like this doesn’t usually exist in retirement and must be sought out.

Even if you’ve been anticipating retirement for years, it’s still a significant change from having limited free time to have all the available time. Retirees need to find the right living situation that supports their new lifestyle. 

Financial strain can result from owning two homes.

Your financial situation can be strained by buying a second home, and you may have to wait longer for retirement. Some buyers may be open to renting the property (which can be a significant amount of work to manage), but others may not be.

Ultimately, the move will reduce your cash flow for saving and investing unless the property is rented enough to generate an after-tax profit. Some could end up hurting their retirement goals and further delaying their retirement.

Even with a fixed mortgage, your breakeven point can change over time. Tax law changes, such as those made at the end of 2017, can increase a home’s or second home’s carrying costs. Taxes on state, local, and property are now capped at $10,000 yearly for singles or married couples.

New mortgages starting in 2018 will be able to deduct interest up to $750,000, down from $1 million. No rule is guaranteed to remain the same in the future, but they might become even stricter if you have the money to buy a home with the cash on hand, although getting a loan and investing the money might be wiser.

Renters can always offset rising property taxes or unfavorable tax changes with higher rents, but not every market will allow it. The bottom line can also be affected by changes outside your control, such as an economic downturn, environmental changes, or a wave of new rental inventory.

How to buy a retirement home in different ways

A one-size-fits-all approach doesn’t exist, but waiting until you’re much closer to retirement can be advantageous for some. If you are considering moving away, consider spending extended vacation time in the city or town. You can get a feel for life as a local by renting a home in the neighborhood if you are considering moving there. The experience of living somewhere is quite different from visiting as a tourist.

It could also apply to individuals or couples who want to stay nearby their current residence. Moving downtown can be a shock, even if you’ve lived outside the city for only 20 minutes. 

When it comes to filling your days, what do you have planned? You may decide to forego the traditional arrangement of two homes if you are a ‘snowbird.’ A new city or country can be explored every year for a period during the winter through rental websites like Airbnb or VRBO. Flexible, cost-effective, and engaging, this model offers individuals a variety of activities and opportunities. 

If you are eager to sell a house that may take some time to sell, you may want to consider putting it on the market early enough to capture more than one selling season. You might consider renting if your house sells before you retire to avoid carrying multiple homes. 

You should consult your financial advisor and a real estate professional before buying a house at any stage. Regarding retirement homes, flexibility can pay off financially, so it is worth considering before purchasing one too soon.