HOW TO DECIDE WHERE YOU’LL LIVE YOUR LAST 15 YEARS.
COVID-19 has changed everything, including where people might want to live in their later years.
Many of our clients are thinking about and planning real estate changes as they get older. Generally speaking, their options are: stay where they are; buy somewhere else that is physically easier for them; rent somewhere else that is physically easier for them; move in with younger family members in a three-generation home; or, go to some form of retirement residence.
Given COVID-19’S effect, my sense is that people are leaning a little away from the fifth option. It is entirely understandable, but might not be the best long-term solution.
Let’s walk through some of the key discussion points that we have with our clients, and, hopefully, they will be helpful as you contemplate your next steps.
Stay where you are
This is the easiest decision, but often not the wisest one. From a lifestyle perspective, it starts with where someone currently lives and whether it will fit their future needs, both physically and emotionally.
By physically, we look at their current health, ability to navigate stairs and ability to manage the property. By emotionally, we look beyond whether they can physically manage things to whether they want to. There is often an emotional attachment to a place that has been lived in for a long time. Also, one of the biggest reasons to stay is that someone can’t fathom the amount of work it would take to actually move.
On the physical front, people often stay longer than they should. Unfortunately, it can take an accident that scares them into taking further action.
On the emotional front, it can be overwhelming to think about moving in many ways. By simply not moving, you put off these issues for another day.
There is no question that change is hard, especially as one gets older. Given that reality, it is even more important to honestly review where you currently live and whether it will be the right place for you over the next handful of years.
From a financial perspective, the main difficulty with this option can relate to two items. One is that this more physically demanding option might lead to having to pay for personal care support that can be expensive. The bigger one is that this personal care is being paid for without the benefit of having sold a property to help pay for it.
Without having to go the reverse mortgage route (which I generally don’t recommend), there is often an ability to get a home equity line of credit put in place, even though there is likely no employment income. This can help manage the cash flow and budgeting. This is a much more cost-effective way of getting some liquidity from your house without having to sell it or use a potentially very costly reverse mortgage.
Buy somewhere else that is physically easier for you
Most often, we see older clients selling their family home and moving to a large condo or bungalow elsewhere in the city or beyond. This can accomplish one goal of moving to a physically less demanding space, and, ideally, frees up some cash as well.
Of course, freeing up some money from the transaction depends on the quality and location of where you are moving from and where you are headed to. Unfortunately, in some cases — such as moving from an older home that needs significant updating into a new condo — the hoped-for cash doesn’t appear.
For many, the big hurdle of downsizing is the daunting task of purging their stuff and getting a house ready to sell. To help with this emotional and physical challenge, there are people who specialize in this hard transition. They start with a real estate agent who specializes in working with those who are downsizing. That agent can bring in people who specialize in decluttering and a transition team to make the house look its best for sale and suggest either staging or minor improvements to increase its market value.
For most, this part is too difficult to do on their own or with their children. An independent third party can help make things happen in an unemotional way.
Rent somewhere else that is physically easier for you
This has some of the same physical and emotional challenges as the option above, but it has a few differences.
On the positive end, it creates significant financial flexibility as well as more flexibility for future real estate decisions without having to go through another costly home sale.
On the negative side, after many years of ownership, renting can be a concern for some. This concern can usually be lessened if you are able to rent from a larger corporation as opposed to an individual who is more likely to want to move into or sell your rental property at some point.
Another concern is that this scenario moves money from the tax-free growth of your principal residence into investments that are likely going to be largely taxable. This will increase your taxable income and could have related financial consequences.
As a result, I often recommend that people buy another principal residence rather than rent if they expect to be in the new home for at least six years. To own for a shorter period than that might not make sense when one considers the extra costs of a buy-and-sell real estate transaction.
On the financial front, this allows the equity in the house to be turned into a monthly income generator that can reasonably be structured to generate more than four per cent a year in income by using dividend-paying stocks, preferred shares and possibly some other investments such as mortgage investment corporations. This can often easily cover rental costs.
There is also some additional flexibility to help children financially in a way that may have been difficult before.
Move in with younger family members in a three-generation home
This is an option that had become less popular, but is returning again, especially with COVID-19. Vivien Sharon, a Toronto area realtor and author of The Boomer’s 7-step Guide to Downsizing, says she has seen the three-generation home making a bit of a comeback.
“Feelings of isolation and loneliness are alleviated when grandparents live with extended family as they’re able to spend more time with their grandchildren which in turn helps reduce childcare,” she said.
This can be a great solution financially as well. Of course, the family situation has to be particularly well aligned to make this work emotionally, as I can only imagine what some readers would think of this option as it applies to their own children.
Go to some form of retirement residence
Under many scenarios, this remains a very good option. COVID-19 has increased some concerns, but a retirement residence can offer true independence for a long period of time. The biggest advantages are that food, bills, property and, in some cases, laundry are all taken care of by somebody else.
For many who have had less social interaction living on their own, it can be a much healthier lifestyle to be around other people at meals, and then to be around others as much or as little else as they would like at other times.
The cost can be high for some of the nicer retirement residences, but there may not be a significant increase in budget costs when you compare it to all the costs associated with owning or renting a property. At the same time, as in the sell-and-rent example above, the proceeds from a home can generate a sizable monthly income that might cover the entire cost.
The key to a successful real estate transition is an open discussion with family and friends you trust and with outside experts. There are a number of potential options, so the key is to make a decision that is driven by you and is an educated one. Fear of change, fear of decluttering — how will we ever get rid of all of this stuff? — and fear of renting are not good reasons to stay in a home that is not well suited to the next stage of your life.
There is no question that this is a hard discussion, but it can be one that leads to an improved life in many ways.