Buying that dream retirement home after all those years of dreaming is one of the biggest — and potentially one of the most difficult — decisions you can make. There’s a lot to consider. And you have to do it correctly.
“So many people I meet haven’t talked about it,” said Jim Heafner, president of Heafner Financial Solutions in Charlotte, NC. “There has been no conversation or planning. They have been married 30 or 40 years. He thinks they are going to the mountains, she thinks they are going to the beach.
“Preplanning is really important,” he said. “These are hard conversations that you think people will talk about, but with busy lives they just don’t.”
Rodney Harrell, director of livable communities at the AARP Public Policy Institute in Washington, D.C., says children and grandchildren can be big factors. “It may be of crucial importance [to me] to live near my grandchildren; or to you, it may be nice but not necessary. You have to take into account your own preferences. It isn’t a one-size-fits-all home solution. Every reason to pick a home is a valid. The trick is to pick the best things on the list that meet your needs.”
Without proper financial planning, committing to a retirement home can be a serious mistake with long-term implications. Here, according to financial and retirement advisers are some of the biggest mistakes people make when they buy a retirement home.
1. Not having a plan
“I had a couple in today,” said Heafner. “They will sell their place in five years and move to Hilton Head, SC. My concern is, have they really tested out the location? For some people it’s more of the same. They just play more golf. For others it’s a whole change in lifestyle. Maybe it’s Florida or Arizona. They haven’t tested it out, haven’t talked to neighbors. I find some who bought that dream home and they can’t stand it there.
“Do your research and due diligence,” he said. “Spend time and vacation there. I hear people all the time say they will sell their home and buy an RV. Have you even tried an RV? You should rent one. Maybe you don’t like campfires. I find it unusual that people will send on thousands on an RV and haven’t tried it.”
2. Forgetting your friends and social network
Not considering how important it is to be near friends and the social life you’ve enjoyed for years is “a problem I see people talk about the most,” said Larry Rosenthal, president of Rosenthal Wealth Management in Northern Virginia. “Even if they stay in same community, it may be across town, 20 minutes. Or across state. A lot of it revolves around social activities, families, friends, kids and grandkids. Those are the biggest mistakes. They may say I want to go to New Mexico and the kids end up in California with the grandkids.”
3. Selecting the wrong financing alternative
“They put too big a down payment on the house and become house rich and cash poor,” Rosenthal said. “I recommend that they do a financial plan with adviser and look at the appropriate amount to put down. Some people need a big mortgage in retirement, some people need no mortgage in retirement and some need a small manageable mortgage in retirement.”
“Nobody wants a mortgage,” said Gregory Hammer at Hammer Financial Group in Lake County, Ind. “But paying off a home doesn’t necessarily pay bills. Consider the tax impact of withdrawing from a qualified plan.”
4. Assuming you will be able to drive forever
That’s a “big mistake” said New York eldercare attorney Ann-Margaret Carrozza. “I encourage my retiring clients to look for homes within walking distance to stores, public transportation, cultural attractions and movies. This is why I am a big fan of retiring in a city whenever possible. In addition to increased opportunities for socialization, a metro area will usually offer top quality hospitals and other medical providers. My nondriving clients who live in major cities are much more independent than their counterparts who are forced to rely upon rides from relatives.”
“Pay attention to where you home is located,” said Harrell. “Pick a location with the kinds of things you made need as you get older. We must do a good job of planning ahead. Many people purchase homes based on where they are today. All of a sudden if you can’t drive, you can’t get to your favorite store or church.”
5. Don’t underestimate your home-related expenses
“People look at their accounts and say, ‘I have the money’,” said Hammer. “I will just pull $150,000 out. When you pull that type of lump sum, you need to take out $200,000 when you consider federal and state taxes.”
“Make sure you can afford the place,” Heafner said. “Allow for repairs, improvements and alterations.”
And don’t forget about maintenance, including things like lawn care, said Rosenthal. Most retirees want less maintenance.
Carrozza said retirement communities and over-55 developments may be an attractive option for retirees, but many people don’t investigate the fees these places charge. “Failure to investigate the common charge or maintenance trends over the past few years can be a big mistake. Perhaps you can afford the current charge. However, it is critically important to know whether the trend over the past 5 years or so has been to increase this charge significantly. “
6. Buying based on your current income
Big mistake, said Hammer. “They should plan on legacy. What is the plan when the first spouse passes away? There could be a loss of income and the tax implications become greater. Most people plan for the moment. The value of me as a planner is not if what ‘should happen’ happens. It’s when what ‘shouldn’t happen’ happens. I try to bring in all the scenarios.”
7. Insuring properly
Heafner said most people, unless they have large incomes, don’t think much about a personal umbrella policy until it’s too late. “It is so inexpensive to shield yourself with a $1 million or $2 million policy.”
Harrell adds: Look for what will meet your needs today, but don’t forget to plan ahead and find a community that will meet your needs in the future.
From: http://finance.yahoo.com/news/biggest-mistakes-people-buying-retirement-100029956.html