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James E. Brennan, CFP

What to Consider Before Moving in Retirement

Given the winter we just survived here on the East Coast, I expect many of you near retirement (or perhaps even those not yet approaching that date!) are pondering a move in the near future to greener, more temperate climates. Before you call your realtor and put up the “for sale” sign, I want you to ponder several considerations:

  • Don’t run out and buy a new home in your new “Shangri-la” right away. In fact, the best advice many retirees before you would give, and I concur, is to consider renting a home or condo in a new area you may move to for a month or more. While there, get a feel for the best neighborhoods, the seasons, the traffic, the cost of living, the daily life, and how you would fit in. What volunteer activities do they have and is this something that you would enjoy? Repeat this in several locations before selling your current home. Many who have sold their home and bought a new one in their “ideal” locale wound up feeling deceived on many of these fronts and longed to move back to the great life they had.
  • Get familiar with the tax, health care, and cost of living in the region you are considering. My favorite website for this is Bookmark this site and study it! This guide will provide all sorts of great information about the state and region you are considering, but the greatest issues that affect you (and are easily found on the site) are the taxes (income, sales, estate), health care ratings, and cost of living comparison. You should spend a good amount of time understanding how the local hospitals rate, how your health care plan is received, and what amenities are available at low cost to seniors (for much later where you’re old, of course!). Being aware of how investment income, pensions, and your estate are taxed should also be considered, as well as how much more or less expensive it is in your new home versus your current neighborhood. I will gladly guide you on all of these considerations. Please note: Maryland finally voted to increase its estate tax exemption amount. The limit will increase incrementally, starting at $1.5 million and finishing at $5.9 million in 2019.  Several clients made it their mission to move closer to their children and grandchildren once retired, only to have their children move away Jim Brennan, Certified Financial Planner and Partner Continued on next page Photo courtesy of hyena reality/ soon after for work or other reasons. This is a great reason to rent for a few years! If, after that time, you have established your own roots and reasons for staying, then consider a home purchase. However, if they move away and you have no other connection, you have no house to sell and can ponder your next move very easily.
  • Consider what it would be like if just one of you were living in this new community. Does it provide great support, keeping you active after the loss of your spouse? I will state here that many clients are focusing on college towns because of all the wonderful perks they can provide, from free college courses to higher levels of volunteer activities to excellent medical facilities. In fact, one client has a nursing student living with her, wherein she offers lower cost rent in return for a valuable companion in case of health issues. The website has selected over 97 college towns in 39 states that should be attractive to those seeking this type of retirement destination.
  • Finally, consider a mortgage. I’m sure I have at least 10 clients grinning at this recommendation. Often, this is a tough recommendation to swallow because the conventional wisdom says that you should not take a mortgage into retirement. In certain circumstances, however, I will highly recommend that clients carry a small mortgage into retirement ($100,000-$200,000 range, depending on the client). The primary circumstance in which I will have clients consider a mortgage is when they have very little saved in taxable (non-IRA, 401(k)) accounts. You have heard me say many times that you need to head into retirement with a solid mix of taxable, tax -deferred, and tax-free savings. Without a healthy (25%+) amount of your assets in taxable accounts, you will rely too heavily on tax-deferred (IRA, 401(k)) savings and will be stuck in a higher tax bracket in retirement, meaning a larger percentage of your savings will ultimately be spent on taxes! Thus, a mortgage is a great way to keep more of your savings in taxable accounts and less in highly-illiquid real estate equity. For those who have high monthly pension payments, a small mortgage may also be a good move since you will likely need the deductible mortgage to offset your high income throughout retirement. If you are considering a move in the near future, I recommend that we sit down to review all of these issues as compared to your financial situation. We can save you a great deal of money, headache, and planning considerations and help you avoid costly mistakes that previous clients wish they hadn’t made heading into retirement.