WHEN is a house your safe haven and when is it standing in the way of richer life experiences?
That’s the question more and more retirees are asking these days.
Take Barbara and Mike West and Joseph and Phyllis Applebaum, retirees and longtime Maryland residents.
After years of analyzing their financial situation, the Wests decided to put the mortgage-free suburban house they had owned for 26 years on the market. They wanted to avoid the mid-Atlantic winters and considered moving to Hawaii, where they had lived while Mr. West was in the U.S. Navy.
But they decided it was too remote. They also ruled out San Diego, Savannah, Ga., and Charleston, S.C. Florida, they decided, was a possibility.
They considered renting their Maryland house out for part of the year, yet the idea of storing some of their household goods and someone else sleeping in their bed changed their minds.
Of the decision to sell a mortgage-free home, Barbara West, 63, said it would give them a chance to dream and to explore. Besides, “It’s a lot of money locked up in the house,” said Ms. West, who retired from her job as a lobbyist two years ago. “It’s a nice side benefit. It will free up money. We’ll have more flexibility. We’re kind of looking at it as an adventure.”
The Applebaums — Joseph, 71, and Phyllis, 67, also decided to buy a place in Florida.
Their calculations were slightly different. They still had a mortgage on their home, where they had lived for 27 years. By selling the house, they could take the profit, buy in Boca Raton for cash and be mortgage-free.
For those 65 and older who have paid off their mortgage — approximately 70 percent of homeowners in that age group — the financial future looks bright.
Many still want to sell their homes to free up money that would give them more flexibility during retirement. So they sell or plan to sell their home, and create a less expensive lifestyle. For those who have a mortgage, selling and moving to a less expensive area can create a mortgage-free lifestyle.
Close to 80 percent of the 41 million Americans age 65 and older are considered homeowners — whether or not they carry mortgage balances. That is the highest percentage of all age groups, according to the Consumer Financial Protection Bureau.
While the overall homeownership rate has remained the same during the last decade and even after the recession for the 65 and older demographic, the percent of older owners with a mortgage increased to 30 percent in 2011, from 22 percent a decade earlier, according to a May 2014 C.F.P.B. report. For those age 75 and older, the percentage carrying mortgage debt more than doubled, to 21.2 percent from 8.4 percent, in the same period.
Reasons include the refinancing boom of the 2000s, a first-home purchase later in life, smaller down payments and the use of home equity lines of credit, the report said. For 2013, the percentage of homeowners age 65 and older carrying mortgage debt remained at 30 percent, according to the C.F.P.B., which releases the data every two years.
“There is a definite trend that older Americans are carrying debt into their retirement years,” said Stacy Canan, deputy assistant director for the C.F.P.B.’s Office for Older Americans. “Decades ago it was sort of rare.” She does not see that trend abating as the age groups younger than 65 are carrying mortgages, too.
Older Americans have credit card debt and student loan debt, but the “largest part of the debt, without a doubt, is related to their mortgages,” Ms. Canan said.
After more than one trip to Florida, the Wests found through friends a community under development near Jacksonville, and decided to build a four-bedroom house there.
“New has a lot of appeal, especially at our age,” Ms. West said. For Mike West, 65, who retired in June, the house in Florida would be the closest he would come to building his dream home. Rather than cut and trim the lawn and shrubbery as they have been doing in Maryland, they will pay for services and travel more.
Changing their lives won’t happen overnight. From the time they signed the papers, it was going to take 10 months for the house to be built, so they expect it to be ready in July 2015.
The biggest gain is the sense of freedom that lies ahead. “We’re hoping our house sells early so we’ll be homeless for a few months,” Ms. West said.
The calculations in trading one home for another are individual and depend on the value of the house, the equity in it, income, anticipated future income and other expenses.
Those in the throes of change typically spend time analyzing the kind of life they want, how much income they will have and their costs.
With home and home-related expenses the largest cost for every age group 50 and older, according to research from the Employee Benefit Research Institute, it’s worth considering if you will be able to afford the cost of living where you are, whether you want to stay there and what your other options are.
“They need to sit down and figure out their retirement plan — what’s coming in and what’s going out,” Ms. Canan said.
The E.B.R.I. report, based on research from 2007 through 2011, shows declines in spending on housing costs, but whether the spending patterns will continue remains to be seen. “The crash had really changed some spending patterns,” Sudipto Banerjee, a research associate with E.B.R.I, said.
Even those with considerable investment portfolios are aware of the uncertainties in the financial markets. “They say, ‘I don’t know now how the return will be. The bottom line is I need to save more.’ That’s why we’re seeing these big spending cuts,” Mr. Banerjee said.
According to a study from the Society of Actuaries, Personal Risk Management: 2013 Risks and Process of Retirement Survey Report, cutting back on spending or intending to “is not as income-sensitive as might intuitively be imagined.”
Among retirees with annual incomes below $50,000, 79 percent had already cut back on spending or planned to, while 73 percent of those with incomes greater than $100,000 were spending less as well.
Freeing up money from a house or other property that no longer meets your wants and needs is often the first step. “If you can be retired and not have a mortgage, it can be a lot better,” said Anna Rappaport, chair of the Society of Actuaries’ Committee on Post Retirement Needs and Risks.
Adventure appealed to JanSuzanne Krasner and her husband, who had paid off their mortgage. Two years ago, they sold their house in Westchester County, N.Y., and left for Israel on the last flight out the night of Hurricane Sandy. They rented an apartment in Tel Aviv for 10 months.
Next, they spent a month traveling in southern Africa and Europe, then rented an apartment in Manhattan for two months. They had sold most of their belongings except personal memorabilia, and decided to buy a furnished place in Boynton Beach, Fla., for cash.
“By moving to a less expensive area, it frees up money to travel,” said Ms. Krasner, 67, who had been in business with her husband for many years, retiring in 2009. “We have enough money to feel secure.”
For both the Krasners and the Wests, maintaining family ties were a priority and played a role in their decisions. Each of the couples has two grown daughters whom they want to be able to see. Mrs. West has a sister in Florida, and the Krasners have a number of cousins in the state. Family relationships, the weather and the cost of living were paramount.
“The rest didn’t matter,” Ms. Krasner said. “Nothing will be perfect. We prioritized.” They hope to spend three months of the year in Tel Aviv.
For the Wests, who are in the process of selecting the details of their new home, there’s a sense of the unknown ahead. Their new community is “carved out of a pine forest,” Ms. West said.
“You’re looking at dirt. It’s exciting,” she said. “It’s daunting.”
Source: NY Times