Should I Stay or Should I Go?

Tough Choices for Retirement

One of the questions I am asked most frequently these days is, should I sell my house? Nearly every time, I am being asked this by someone who has lived in their house for 20, 30 or more years. When I ask why, they usually say it is because they are struggling to make ends meet and since the market is good right now…….

home-for-saleThis is one of the hardest decisions facing retired folks today. It is a discussion I have with my financial planning clients very early in our working together, regardless of their age. You see, the only correct answer is; “it depends”. I ask them if they can see themselves maintaining the property as they age. Some people have extensive landscaping to maintain. Some homes have stairs that become difficult to navigate as we age. When I was young, my mother was quite ill and we installed a mechanical chair that moved on a track so that she could go upstairs to her room. Eventually, even that became too much so we converted the den into her bedroom.

For others, it is the cost of maintenance. This is one of the more difficult situations as the property will degrade without proper maintenance, and paying taxes and insurance is a must. This is usually because the house needs a major repair and their other assets have been spent and their social security and other income sources aren’t keeping up with inflation. When this happens, a reverse mortgage, Rex Agreement or sale becomes the only options. If it happens in a time of market dysfunction, like in 2008-2009, even those options can be unavailable.

Since so many people I met during the recession were stuck and at risk of losing their homes, I decided that I needed to figure out how people got into this situation. It turns out many of these folks were very focused on getting rid of their mortgage and used a 15 year mortgage or other system for accelerating the payment of that mortgage, figuring they would start to save for retirement once it was paid off. Due to that delay in accumulating retirement assets, their money had less time to grow and they ultimately fell short of their retirement goals. Among this group, due to the lack of time for their money to compound, additional risk was frequently added to their investments in order to increase potential returns. This in turn made them vulnerable to market losses which ultimately set them back even further when the markets dropped.

It is clear that by having enough income and savings, in addition to the house, is how you would avoid having to make these tough choices.

But what if you planned to sell all along? Then the question is: “Is this a good time to sell”? If you are in a position to, this could be a very good time to consider it. There are at least 3 main reasons this could be a very good time.

– Valuations in the Bay Area are very high

– Supply is tight, there are many buyers flush with cash from selling their company stock,

– Interest rates are low for mortgages.

When you look at all of that, this might be the best time to sell for years to come. Many observers think that interest rates will be increasing in the near future, and that could put pressure on prices, as many folks would not be able to qualify for a mortgage. Another consideration is that congress is taking a look at the ability of a home owner to make $250,000 in profit ($500,000 for a married couple), as long as they have lived in the house for 2 of the previous 5 years, without paying any income or capital gains taxes. This is a huge benefit as the tax on a $250,000 gain could be 33% or more here in California!

I would encourage you to be a smart buyer and owner by making sure you have enough money to support the purchase and enough income to enjoy it well into the future. The time to make those plans is sooner than later so you can avoid the “tough choice”. The best time is when you are first purchasing or refinancing your home. The key to getting to that place is selecting the correct mortgage. In another post, I will review how to integrate your mortgage into your overall planning, but if you can’t wait, contact us for our white paper on the subject; “Mortgage Madness” and we will be happy to send you a complimentary copy.

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