4 Real Estate Pitfalls for Retirees… And How to Navigate Them

Retirement can be the best years of your life, without question.  But there’s more to retirement than a permanent holiday from work.  Unless you retired very young, there are very real implications of aging as you make real estate decisions.  Don’t let pride, sentimentalism or inertia get in the way of good financial sense and health planning.

Here are four housing pitfalls that many retirees make and how to navigate each with grace and wisdom.

1. Staying Too Large, Too Long

Plenty of empty nesters get sentimental about the house where they raised their children.  Some simply refuse to move out of pride and stubbornness (“What am I, an old person?  I’m only __!”).  But bigger houses are cost more money, more time and more effort.

If it has more than two bedrooms, you probably don’t need a house that size.  You don’t need to wait until your last child graduates college (or high school, for that matter).  Sell it now, and downsize to a single-story house or condo (more on stairs later).  Use the proceeds to either pad your retirement portfolio or to buy your new home mortgage-free (more on that later too). 

Every month that you live in an unnecessarily large house means lost money.  Not just in the higher mortgage payment, but in higher taxes, higher insurance, higher maintenance costs, additional time spent on upkeep.  Then there’s the opportunity cost: the money you could have cashed out with three years ago is not providing you a return and extra cash each month, because it’s tied up in that large suburban family house.

Sell it now and move on to the next financial phase.  As a bonus, your directionless son won’t try to move back in with you if you don’t have room for him.

2. Stairs & Pedals

Stairs are dangerous at any age, but are a particular nemesis to older adults.  You are probably in fantastic shape today, and likely will be for years to come, so why move somewhere with no stairs already?  Because by the time stairs become a problem for you, moving will also be a bigger problem and hassle for you.  (That, and all the good financial reasons outlined above.) 

When you downsize, move to a new home with the living quarters, master bedroom and master bathroom on the same floor. 

And not in the same suburban neighborhood, either.  Being in a good school district is now irrelevant, and having a yard for Little Jimmy to throw a baseball in is also now meaningless.  What’s relevant is walkability: what amenities are within walking distance?  Grocery stores, restaurants, pubs, coffee shops, museums, art galleries, movie theatres, parks… being able to walk to as much as possible is critical.

You are likely an excellent driver, but once again, moving to a new home in preparation for retirement is about planning for a time when you’re less healthy.  Move to a new home where you don’t need to drive anywhere, and the only pedals you need to press are on a bicycle.

Retirement Real Estate Mistakes3. New Homes, Two Homes

Thinking about a home in another state or region?  Not an inherently bad plan, especially if there are tax benefits to establishing your residency there.  But be careful when uprooting yourself.  There is much to be said for retiring among your friends and family – people and relationships are after all what make life worth living. 

Before moving to a new region, start with plenty of research.  What is it really like to live there?  Talk to people who have lived there, do research online, get a sense of the feel of the place.  Then, go visit in person, ideally several times in different seasons.  Buying and selling real estate is expensive, and each transfer costs tens of thousands of dollars.  Don’t rush the decision.

If you do buy a home in a new region, many retirees are tempted to keep their old home too, and spend time in both regions.  While having a second home can be fun and rewarding, consider carefully the financial implications.  Maintaining two homes is extremely expensive, and unsold real estate comes with both real costs and opportunity costs.

If you must keep both, consider signing a lease on the unused home and recovering some (or even all) of your expenses that way.  You could lease it as a vacation rental, or a seasonal rental, or a month-to-month rental.  Hire a property manager, since you won’t be nearby to manage the headaches that come with rental properties.

4. Mortgages & Reverse Mortgages

There is a best option here: you have no mortgage, conventional or reverse.  While younger adults might play around with arbitrage, leverage and borrowing money to invest elsewhere chasing higher returns, older adults are better served by stability and fewer expenses.  If possible, buy your retirement home with cash, and try to avoid hefty taxes and condo fees.

Reverse mortgages are a lengthy topic, but the bottom line is that most retirees should avoid taking on debt if possible.  Ideally, you’ve planned your retirement thoughtfully enough that you don’t need more money each month from a reverse mortgage.  If you’ve come up short in your retirement savings, consider taking a fun, stress-free job, whether part- or full-time.  Share the skills, knowledge and wisdom you’ve accumulated over your life, and get paid for it.  Tutor, coach, teach, write, publish.  Consider volunteering: it's rewarding in its own right, and fulfilling full- or part-time job opportunities often emerge from volunteering. 

Retirement doesn’t have to mean “no work ever again,” it can mean “fun, meaningful work with no career strings attached.”  If all else fails, scale back your lifestyle; many people live extraordinary lives on a frugal budget.   Keep one eye fixed on your finances while making your retirement real estate decisions, and you'll find retirement really can be the best years of your life.

Related Reading:

The Pre-Retirement Checklist: 10 Tips Before Making the Retirement Leap

Why Americans Need More Retirement Savings than They Think

Estate Taxes: A Beginner's Guide to Minimizing Tax Burden