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Retirement Home

Finding (& Funding) Your Retirement Home

Retirement is a time of transition. Those approaching retirement often look forward to the freedom that will be plentiful once they stop working. That flexibility not only allows them to dictate how they spend their time, but where they spend it as well. We have many conversations with clients about where they would like to spend their retirement, as well as how they may be able to fund that relocation once employment income stops.

Considerations for Finding Your Retirement Home

There are some qualitative factors to consider when looking for your retirement home.

  1. Lifestyle: As a (not so good) golfer and fan of the beach, I can see myself spending many months of retirement down south. Others who prefer hiking or more scenic landscapes may choose to go out west.  We have even seen clients move overseas. You spend your entire career working and saving so that you can enjoy retirement, so why not follow your passions? One thing that I try to encourage clients to do is to rent in a new location for a year or two before buying. Oftentimes, clients pinpoint an area that they have vacationed in and determine that is where they’d like to spend retirement. However, spending a couple of weeks per year somewhere is much different than living there. Renting for an extended period will allow you to face the difficulties of your new location and can help you determine if that is truly where you’d like to settle long-term.
  2. Taxes: As a New Jersey based firm, we are all too familiar with people flocking the tri-state area for tax reasons. The most common thought process here is that people move to a state with no state income tax, such as Florida. There are a couple of other tax considerations. One, property taxes. For instance, Texas has no state income tax, but has among the highest property tax rates in the country according to a 2020 Forbes report. Florida falls in the middle of the pack. You also may want to consider that particular state’s estate tax laws.
  3. Family & Friends: Although people enjoy associating retirement with warm weather and low taxes, it’s hard to overlook the fact that proximity to family and friends can play an important role in deciding where they spend retirement. Grandparents may want to play an active role in their grandchildren’s lives, which is hard to do if they live on opposite sides of the country year around. This is one reason why retirees might consider two homes: downsizing in their pre-retirement location and purchasing in their desired retirement location.

Potential Funding Options

Now that you have found your retirement home, how might you be able to fund it? Income has likely stopped or been significantly reduced, so how can you qualify for a mortgage? You may now rely on your portfolio to fund your living expenses, so does selling assets and buying in cash make sense?

  1. Temporary Distributions: One obstacle that retirees may face is qualifying for a mortgage. Lenders often like to see a steady stream of income during the underwriting process. One possible strategy is to begin taking temporary portfolio distributions to show income. Once the mortgage is approved, you could turn off those distributions to maximize the assets that are invested in your portfolio.
  2. Borrow Against Existing Assets: It might make sense to borrow against your existing assets if a traditional mortgage is unobtainable. Pledged asset lines and margin loans allow you to borrow against portfolio assets, while home equity lines of credit (HELOC) or cash out refinances may allow you to borrow against your existing home (if not being sold). The underwriting standards differ for all of these strategies, as does the time it takes to get them in place.
  3. Buy in Cash: If you plan to sell your existing home and the timing of the transactions works out, you could consider a cash purchase using the home sale proceeds. At today’s low interest rates, it likely makes sense to use the cash to fund the down payment, take out a mortgage, and invest the excess cash; however, we understand that not everyone is comfortable with taking on a mortgage in retirement. This scenario could make sense for those who are debt averse and simply want to own the home outright.

Buying a home is a big decision at any point in peoples’ lifetimes. Layering retirement on top of that can make it a little more intimidating. If you are considering buying a retirement home, please reach out to your Wealth Advisor to determine the best approach when doing so.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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