Smart Moves

Real Estate and Retirement

Kai Anderson is just 47, but she’s already amassed enough income-producing real estate to retire from her government job as early as age 60. Rents collected on the six townhouses she owns -- coupled with retirement savings -- will give her the freedom to pursue any interests she fancies in her post-work years.

Anderson is one of many Americans who count on real estate to play a major role in their future. Decisions on the purchase and sale of property can have a huge impact on quality of life in retirement.

“Don’t take your real estate planning lightly. Making the right choices is crucially important to your financial future,” says Sid Davis, a veteran real estate broker and the author of multiple books on buying, selling and investing in property.

One real estate decision with especially momentous implications for retirees involves buying property abroad or in a faraway U.S. city. Financial planners caution that such a long-distance move can entail many unforeseen consequences.

“You have to look behind the curtain before making any big life decision or move,” says Keith Weber, a certified financial planner and author of “Rethinking Retirement.”

What’s the best way to play your real estate cards as you head into retirement? Davis says there are multiple good answers to that question. Some homeowners tighten their budgets and pay off a mortgage early. Others refinance any mortgage debt they have in order to lengthen the term and thereby cut their monthly living expenses in advance of retirement.

Of course, some homeowners must tap equity just to survive after they’ve ended their careers. That could mean they may have to sell their property to afford such basics as food, clothing and medicine. Alternatively, some income-short retirees take on a “reverse mortgage.” This has the potential to liberate them from principal and interest payments in their senior years.

Although many are uncomfortable with the idea of becoming landlords, Anderson is an exception to that rule. She recommends taking a systematic approach to acquiring and maintaining rental properties, and offers advice on her tactics in a new book titled: “Retire on Real Estate: Building Rental Income for a Safe and Secure Retirement.”

Among the pointers in her book, Anderson offers suggestions on handling the upkeep demands of rental units. She suggests landlords create an enduring relationship with a skillful and trustworthy contractor who can deal directly with tenants without their intervention.

Perhaps it’s not possible or practical for you to buy rental property to help fund your retirement. Even so, if you’re a homeowner, you may be able to generate extra income by renting out a spare bedroom or two in the place where you already live, a plan Anderson says works well for many empty nesters.

Here are a few pointers for those pondering their future real estate options:

-- Make sure you thoroughly discuss your real estate plans with your partner.

Dorian Mintzer, a psychologist who specializes in retirement and relationship coaching, recommends that soon-to-retire couples spend several hours discussing their views on the ideal retirement arrangements.

“The idea is to reach a shared vision through creative compromise,” says Mintzer, co-author of “The Couples Retirement Puzzle: 10 Must-Have Conversations for Transitioning to the Second Half of Life.”

She says couples who head into retirement without reaching a common vision could be at risk for an eventual breakup.

-- Make sure you factor financial concerns into your planning.

Although many people approaching retirement think the most prudent choice is to sell a large house in favor of a smaller property, a minority view retirement as their last opportunity to buy or build a larger or more sumptuous place.

Ernie Zelinski, author of “How to Retire Wild, Happy & Free,” points to research showing that retired people who live in spacious homes are no happier than those who reside in small places.

“People say, ‘This is my chance to buy that dream house I’ve always wanted.’ That causes them to buy a far bigger place than they really need for retirement,” he says.

Zelinski recommends that retirees make a realistic evaluation of their housing needs, as well as their budget limitations, before committing to the purchase of a large property that comes with major utility expenses and maintenance obligations.

-- Don’t assume you’ll save on living costs by retiring far away.

It can seem financially wise to sell one’s home in a major metropolitan area to move to a rural town that claims a significantly lower cost of living. But Davis says this could be false economy unless you think through all the financial implications.

For example, if your grown children and grandchildren live all over the U.S. and you wish to see them often, how much would it cost for flights in and out of your rural airport?

Another factor to consider involves convenient access to quality health care. During their senior years, many need consultations with high-level medical specialists or surgery at a major hospital.

When visiting a new retirement location, Davis recommends you bring along a checklist to ensure the community would meet your requirements. Among other factors, check out the local transportation facilities, including public transit, and access to cultural and entertainment venues.

“It’s not only your money, but also your contentment at stake when you make any real estate purchase, sale or investment for your latter years,” he says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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