Where in the hell are my wife and I going to live when I retire in 6 years? That question keep rumbling through my mind so let’s at least narrow it down some. There are so many things to consider, both emotionally and financially, when trying to answer the housing question.
I’m not talking about which city/state but what type of housing we will live in for the first 10, 15, or 20 years of retirement. And I’m not trying to solve the question about the long-term care or assisted living type of places. But you see, there are so many parts to this question and it’s been swirling through my mind lately.
But let’s focus on the problem. Do I buy a condo? Be a renter? Stay in my current home or buy another? Buy an RV and travel for several years? Stop – let’s take the RV-only residence off the table because we really aren’t those type of people.
I think the reason for my struggle is two-fold: (1) my wife’s engaged in the conversation and this is truly joint decision that needs to be made and (2) there are emotions and significant ramifications involved. The easy part is understanding the financial portion of this decision, which will be a big part of this article. But it’s the emotional portion that can muddy the water.
Whatever we do for living quarters in retirement, I figure it will be a phased approach: active (62-75), less active (i.e. slowing down) (76-80), and non-active (81+). For sure, these ages are dependent on the people and will be different for everyone but they are place holders.
For purposes of this article, I’ll focus on the first 2 phases because there are too many variables to consider for the final stage. It’s just too soon to consider the “non-active” stage at this point in my life. Plus, non-active stage could actually end up being two phases too but we’ll deal with that another time.
Shelter Ain’t Cheap
When I first thought of my retirement housing situation, it didn’t really occur to me how much it would cost. You payoff your mortgage (highly recommended) before you retire and all should be good. At least those were my early thoughts.
But when I started looking at some numbers, I was actually shocked how much it will cost just to house my wife and I even with a paid-off mortgage. Heck, I didn’t even include furniture, moving costs for renting (figuring you’d probably move a few times in 20 years), or ….
Just to stay in a single family residential home (either our current one or another like kind home) would cost us $333,000 over 20 years. At a minimum, doing this exercise just reinforced that you still have plenty of housing costs that need to be addressed even if you have your mortgage paid off. And many retirees are still carrying a mortgage into retirement (approximately 45% according to American Financing) so you can add those costs into the equation too.
Purely from a financial perspective, count me out on renting regardless of the pros/cons list you’re about to see. $561,000 is insane to consider over 20 years and this was for only a $1,500 monthly rent in today’s dollars.
In many places of the country, $1,500 won’t get you much but it seemed like a decent figure for this exercise. Either way, renting is costly and likely out of the equation just from a financial perspective.
And what’s killing the condo potential is the HOA fees, which I plugged in at $1,000 per month in today’s dollars. There is a condo in town that we like and those are the fees. But in many cases, these fees are what separate good condos from bad ones. I’m sure I could find something cheaper but they’d likely be falling apart and that’s not what we’d be looking for.
Rent
There are a lot of good things to consider with renting … in fact, it can be very appealing at first glance. But the yearly costs are high, rents rise, and landlords can be jerks (along with transient and noisy neighbors).
And while the prospect of not mowing the lawn or having to trim all the trees looks good, surveys show that only about 5% of people want to sell their homes and rent. This may change as baby boomers continue to retire and more housing options become available but that’s how it stands today.
And to be honest with you, I rented in my 20’s and don’t really desire going back to that process. Owning something certainly feels much better, especially for older people. To most people, renting doesn’t fit into the vision of what a successful retirement looks like. And let’s face it, owning your own home has been the American dream for most generations.
PRO
- No maintenance, both inside and outside
- Smaller place means it’s easier to clean, less costly to furnish, and easier on the utilities
- Easy to leave for a few months to winter in warm country or summer in cooler weather (this is very appealing)
- Free-up home equity for other needs
- Allows you to move more freely, either within town or to another part of the country
CON
- Rising rents
- Attached walls with potentially bad neighbors
- Management not keeping up with maintenance of inside issues (plumbing, air conditioning, etc…) or the landscape
- Dead or wasted money for 20-years by paying rent
- You may have to move more frequently (and I hate moving)
- Feeling less secure than owning property, which is important for older folks
Condo
We’ve only recently started considering condos as a possible retirement housing option. I don’t know a lot about condos other than some horror stories, both during the housing crisis (i.e Miami) or them being old and needing major repairs.
We’ve located a condo near a major university and the prices go from $350,000 to over $1,000,000+. The smallest versions are only 1,200 square feet but the overall cost of living for such a small place is high.
It’s in a cool location with lots of restaurants, theaters and shopping very close. Much like an apartment, we’d get a beautiful pool and many other facilities and there is no maintenance to consider. It would be very easy to get out of town for several months and not worry about the condo – that would be pretty sweet.
But I’m not so sure I’d like to live in a condo for the next 15-20 years. I can see the already high HOA fees ($1,000 monthly) going higher and higher. And the overall cost to own versus a residential home is significantly higher. I have a hard time paying those kind of HOA fees on a retiree budget. It’s almost like paying a mortgage again but the fees never stop.
PRO
- Security of building
- Amenities like a pool, fitness center, etc…
- No maintenance outside with some possible inside responsibility
- Smaller place means it’s easier to clean, less costly to furnish, and easier on the utilities
- Easy to leave for a few months to winter in warm country or summer in cooler weather (this is very appealing)
- Price appreciation of condos is now starting to match or outpace single family homes
- Closer to city life and activity versus us living in the suburbs
CON
- High and never ending (and increasing) HOA fees – I was very generous with only a 0.5% inflation rate because HOA fees rose 32% from 2005-2015
- Attached walls with potentially bad neighbors
- Management not keeping up with maintenance of building
- The potential for the HOA to mismanage the reserve account which would make your fees go higher
- If people don’t pay their HOA fees, others suffer and your fees go up.
- Condo rules can be very strict
Single Family Residence
Before I get into this single family residence discussion, I’d like to suddenly take a 1-paragraph detour. Please do not consider your home as your retirement plan. If this is the case, you have probably got too much house because it kept you from building retirement savings. Having too much house is akin to “keeping up with the Joneses.”
If most of your retirement wealth is wrapped up in your home equity, you’ll likely have to sell it and downsize. As I’ve already shown, the costs associated with retirement shelter are still high over a 20-year period even if you have no mortgage.
Most people age 50 and older (77 percent) want to stay where they are as long as possible, according to the 2018 Home and Community Preferences survey by AARP. I can easily understand this feeling. I’ve been in my house for 18 years and I could walk inside blindfolded, if necessary. For older people that is very appealing and can provide piece of mind.
Anyway, our home will be paid off in less than 3-years. We’ve raised our children in the house (this is the emotional part) and grew as a family. Now the kids are gone and we have a 2,126 square foot home in the suburbs. We really don’t need to downsize because we kept ourselves from buying some mega-mansion.
Again, taking the emotional part out lets us focus on costs and not location (city or state). If we stayed in a like-kind home then we’d probably come out on top from an expense perspective.
PRO
- More cost effective versus a condo or renting
- We are used to the “home” lifestyle
- Our home is a comfortable size (2,126 sq. ft.) and can be easily fitted for retired living
- If we get an Airstream travel trailer, our cul-de-sac allows for easy access
CON
- We are on the hook for any major and unexpected expenses
- If we leave the home for 2-3 months it’s more exposed to security or other catastrophic (i.e. flooding) situations versus condo/renting
- We are currently in the suburbs and away from city amenities (though we could change that if we moved)
- Maintenance could be an issue as I get older (I do my yard work) though I could hire someone later in life
Conclusion
When it comes to cost, owning a home is the best way for me to go and it’s not even close over a 20-year period. We’ll have full equity in our home to either stay where we are or move to another home in our current city or maybe we choose another.
Condos are very appealing but it’s all about the HOA fees. Those can be your downfall and I’ve heard very few positive comments about long-term ownership of a condo. But maybe I’m not talking to the right people. If the HOA fees weren’t such a big issue then we’d certainly look more closely at the condo life.
Renting isn’t going to happen … it’s just too expensive and a total waste of money. If we sold our house, we could park the money and let it grow or live off the earnings to help offset paying rent. Either way, it’s just way to costly to rent for 20 years.
So it looks likely that we’ll be homeowners for the first 15-20 years of our retirement. The next question will be do we stay in our current home and fix it up or do we move to another place or city? Sounds like another analysis is coming our way.
Thanks for reading!
Mr. TLR