"Should I stay or should I go?" While some of you may be thinking of The Clash's 1982 single or scenes from Stranger Things, homeowners may be asking themselves this as they near retirement. Homeownership rates are the highest for those who are ages 65 and over1 so the majority of investors nearing retirement will soon be deciding whether they will relocate, downsize, rent, or remain where they are. When asked where they wanted to live in retirement, 89% of UBS investors surveyed said they wanted to stay in their current home2. Instead of going along with the seemingly convenient option of staying where you are, take a proactive approach when making this decision.
For example, newlywed couples looking for their first home typically have certain criteria the home must meet based on what they want to get out of it. Location is often a concern, especially if they want an easy commute or to be close to family. They'll consider certain features like the size of the kitchen or backyard if they plan on entertaining friends. Square footage and the number of bedrooms will be a core consideration if they plan on growing and expanding their family. And, most importantly, they'll consider their budget to know what can be afforded.
First-time home buyers take a proactive approach by making sure their home will be practical for their lifestyle and fit into their financial picture now, and in the future. While investors most likely won't be purchasing their first home when they transition to retirement, they should still take the same proactive first-time home buyer approach when deciding whether they should "age in place,"* or not.
Practical considerations: Your home most likely suited your needs when you first moved in, and that may still be the case now, but will that remain true 30 years from now? As you think about what life will look like going forward, it can be helpful to separate your retirement period into three phases: Transition (reducing work hours), My Time (travel and leisure), and The Last Waltz (relaxed, simpler life, eventually focusing on health issues)3. Thinking about how your lifestyle will change will help you determine how your needs will change as you age. What living situation would work best for your future self in all three phases of retirement?
Financial considerations: As your lifestyle changes, so will your spending. Spending patterns matter because they directly relate to the amount of cash flow needed. Housing costs are especially important to be aware of because they typically take up the largest share of retirees' annual expenditures4. Be sure to account for these costs when estimating retirement spending. Not only are housing costs an important consideration, but so is home equity. Home equity should play a role in your retirement plan because prudently managed borrowing facilities tied to your home's value can add flexibility and robustness to your financial plan. What impact will your housing costs and home equity have on your budgetary flexibility?**
Even if you're considering remaining in your current home during retirement, make sure you evaluate your home's suitability as objectively as possible, as though you're a first-time home buyer. A home's sentimental value and the convenience of not having to move make staying at home an appealing option, but make sure all options are thought through carefully to find what best fits into your financial plan. Home isn't just a place to live – it's also a major asset on many retirees' balance sheets. Be sure to consider both practical and financial factors when deciding whether to stay in your current home, or go.
Ainsley Carbone, Total Wealth Strategist Americas, UBS Financial Services Inc. (UBS FS)