Retirement planning is all about making sure you have enough assets, and that they are handled prudently, so they can provide you with the income you want throughout your retirement.

But what about the asset you live in? Factoring your home into your retirement planning has an impact on your lifestyle choices, your available income, your late-stage retirement, and even your estate plan.

Given the increase in home prices we’ve seen over the last decade, the question of whether you should stay in your home, downsize, or even upsize is a little more complicated now. And higher interest rates are increasing the complexity.

Are You Planning to Downsize?

Whether you own your home outright or have a mortgage, downsizing can be an opportunity to lower living costs and potentially realize the value of the equity you have in your home. Given the recent increase in home prices, this may be substantial.

It may also provide the opportunity to move to a new city, state, or even country. You may decide to move to be closer to family, have more access to a hobby, or just enjoy a different climate or environment.

High interest rates are complicating the process a little bit. In some markets, fewer houses are on the market as people who have a low mortgage rate on their current home and have not built significant home equity, are staying put. Those who are moving because they need a better school district or a larger home are creating competition for the homes on the market.

However, retirees who have built equity in their current home may have an advantage, as they are often able to complete a cash deal using the proceeds of their existing home. This is more attractive to sellers, but it can complicate retirement planning if the proceeds of the home were meant to fund other retirement expenses.

The flexibility of being retired can help here, as retirees who have freedom of movement and are not tied to jobs or school districts can select areas of the country that meet their criteria but haven’t seen as much home price appreciation.

However – the amount you pay for your new home isn’t the only factor in how much the move will impact your retirement planning. Be sure to think through:

• Cost of insurance on your new home
• Property taxes
• How much work does the home need to meet your needs now?
• Will it need significant upgrades to support you as you age?
• What about medical care? Is it more expensive in your location? As you age, these costs become significant.
• Will you need to change your Medicare coverage if you move?

Have You Thought About Upsizing?

Creating a family home where children and grandchildren can gather in the decades to come is a dream for many. Buying in a cherished vacation spot where you already have good memories or exploring a new location to create a new family custom, may have been your goal.

Having a home large enough to accommodate family members permanently moving in, or a live-in caregiver, can also be an effective solution if you plan to age-in-place.

Upsizing also has another benefit: larger homes tend to be newer homes.  The size of homes built over the last 20 years has steadily increased. According to the U.S. Census Bureau, the median U.S. home built in 2021 was almost 2,300 square feet. Newer homes have significant benefits:

• Cost of maintenance tends to be lower
• Newer homes are built to modern styles of living and don’t require costly upgrades
• Adding to infrastructure is more easily accomplished

If your current home is one you’ve lived in for many years, the home may have appreciated significantly. Selling it can result in a large tax bill. If you are single, up to $250,000 of the profit may be sheltered from taxes. If you are married, that goes up to $500,000. But given increases in house prices, you may still have a large tax bill. This will lower the amount you have available to invest in a new home.

Taking out a mortgage to purchase a larger home may mean an additional expense burden, so you’ll need to think about whether your income can keep up.

How Will Your Home Impact Your Estate Plan?

Being thoughtful about the disposition of your home in your estate plan can be one of the most important things you do to ensure your children and grandchildren are provided for. While monetary or investment assets can often be readily divided, a valuable home filled with belongings and memories can often create conflict amongst heirs. It will need to be sold to realize the proceeds, which means distributing or selling the contents, making any repairs or upgrades, and finding the right buyer. This can be emotional, time-consuming, and expensive.

Laying out a plan in advance, even down to assigning who gets what and what the most likely timeframe is, can avoid problems. It may be advisable to hire an estate liquidation firm to value the contents so you can be sure of an equitable division.

The Bottom Line

Your home is an important retirement asset, and thinking through what you want and the potential options you have is a good way to get the most out of it. Gaming out various scenarios in the context of your other retirement assets will help you decide what’s best for you.

‍

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

Collabria Capital, Inc. (“Collabria]”) is a registered investment advisor offering advisory services in the State of California and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy, or the completeness of, any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact us at (925) 271-9331 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from Collabria Capital, Inc. with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on our website, www.collabriacapital.com. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

‍