The Cost Of Living In Retirement: Downsizing, Healthcare, And Leisure Expenses – Deciding to downsize your home in retirement can be difficult. Maybe it’s time for a small cabin, or a small place where you won’t have to climb stairs all day. The question is, how do you know it’s the right time? How do you know which property size is right for you and your needs? What should you consider when deciding between renting and buying? What should you do with the proceeds from selling your home and downsizing to something more manageable for your needs?
In our previous series of episodes, we talked about what retirement looks like. How to create a budget, or what should I call a budget
The Cost Of Living In Retirement: Downsizing, Healthcare, And Leisure Expenses
. We learned about the 4% rule and how it can help you figure out how much money you need for retirement. We’ll give you some final tips before you make your move today.
The Downside Of Downsizing
When downsizing, a lot of attention should be paid to deciding where to live in your new community and the cost. It is important for you to understand this in order to estimate how much money you need to save. This goes back to the 4% rule.
Sometimes you may decide where to live because you have grandchildren and want to live near them.
If you know you’ll be on a tight budget, you might decide to go to a more affordable country like Mexico, Bali, or Ecuador. I have friends and family who live very well in these places.
Preparing For Retirement: Downsizing Your Home
Wherever you decide to live, in addition to the cost of living, there are a few things you should consider:
There will be deals. For example, it’s easy to get food delivered to our house, but you can’t deliver the forest to your doorstep, so think about it.
Finally, access to medical care becomes more important as we age. See what hospitals are nearby and check the availability of medical clinics – know what to expect.
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Once you’ve decided on a location, do you rent or buy a home? Before looking at this option as an investment, it is important to know the vacancy rate in your desired field.
I have a client who is considering renting for most of his retirement. But when we looked at the available rental pool, we realized there was a risk that he wouldn’t be able to stay in the area because there was so little rental supply. If he found a place to rent after paying the rent, there was a good chance he wouldn’t be able to live there. So he found an affordable place to buy before he retired so he could still qualify for a mortgage with his employment income.
Now let’s look at the pros and cons of renting and buying from an investment perspective.
The Pros And Cons Of Downsizing
Renting can be a more affordable option, especially if you can’t afford a home payment. Renter’s insurance is cheaper than homeowner’s insurance. If you rent, there is no property tax or condominium tax to pay. Maintenance and upkeep is really cheap when renting. If your lease is up and you decide to move, you can also take a break from renting to travel – put your belongings in storage or sell them to fund your trip and live the gypsy life for a few months or a year.
If you have money from the sale of the home before you decide to rent, you can invest the proceeds and create an income stream instead of making a down payment for the home. This sum is useful if you have lived in your home for a long time. And that’s the only way you can get the income you need to pay the rent.
$300,000 is not a lump sum that you can buy after selling a home you’ve owned for a long time. That $300,000 can provide $1,000 a month forever and still have $300,000 left over for your assets after your passport.
Downsizing In Retirement — Gg Wealth Solutions
Another advantage of investing money instead of investing in a home is that you can get emergency cash when you need it – without taking out a mortgage on your home.
And remember, you can rent year-round sunshine in a foreign country for a comfortable $800/month rent.
So if you live with affordable rent and reasonable vacancy, renting can be a good option.
Pros & Cons Of Downsizing In Retirement
In Canada, if you can get 5% vacancy, that’s enough, so you have more choices in renting. Anything below 2% means the rental market is tight and you risk not being able to find affordable housing if your landlord decides to raise the rent or sell. Any local property manager can provide you with an average vacancy rate for the area.
Remember that this is not always the case. There are areas of our country that have experienced a lot of turmoil and insurgency. The last generation spoiled us, but we’ve all heard the stories of those who bought and sold at the right time and did well.
But we all want to invest in our homes and gardens because we love them and want them to look good for us, our friends and our family. For this reason, you have to make a decision.
Downsizing Your Home: 5 Things You Need To Do
I look at rental properties, this is how I buy rental properties. I see it as an investment that will provide me with an income stream, not my house. Basically, it’s a wash in the long run.
But there is definitely more security in owning your own home. You don’t have to worry that the landlord is going to sell out from under you. You don’t have to worry about your rent going up suddenly.
Now that doesn’t mean mortgage payments aren’t going up and property taxes are generally going up. Interest rates may rise in five years when you refinance, but you still have some control over it—you can prepare for it.
Selling Your Home After Retirement: The Benefits Of Downsizing
And if you’re able to buy a home without taking out a loan, you’ll have more freedom to travel because the money you’d spend on a mortgage or rent can be used to travel the world.
If you sold your old home and now have cash, should you take out a loan or invest? If you receive an inheritance or other windfall, should you use the money to pay off your mortgage or invest?
Well, there’s an investment answer to that question, and there’s a psychological answer to that question, so let’s look at the investment side first.
How To Downsize Your Life (and Upsize Your…
A rule of thumb is that if your mortgage interest rate is already above 5%, you should pay off your mortgage with the interest windfall instead of investing.
This reasoning has to do with the fact that you can earn around 4% if you have a low-risk, balanced investment portfolio.
So if you can borrow at 2% and invest the rest at 4%, you’ll get a net return of 2%.
Retirement Downsizing Infographic
But if your mortgage is 5%, you lose 1%. You pay 5% to the mortgage bank. So if you can earn only 4% on that money, you will lose 1% on the investment of that money.
Since we haven’t seen mortgage rates rise above 5% in over 10 years, there hasn’t been as much incentive to pay off mortgages. Many people would be better off taking out a loan at 2% and putting the money they used to pay down cash or a large down payment on a house instead of putting the cash down at 4%. Now they’re making enough money to cover their mortgage payments and are still growing their savings.
Not everyone sees this as a purely financial decision, and that’s okay. In the minds of many of us, debt is debt, and they hate it. They do not want to hang any debt on themselves. This is a personal decision.
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So which option is right for you – renting or owning? You’ll want to talk to a financial planner who can prepare several cash flow projections for you based on different scenarios. And that’s what I do with my clients.
Now let’s talk about the actual subtraction part. The act of giving or selling unwanted items to someone who can use them can be a very satisfying part of starting a new journey.
But, without exception, everyone I talked to lost
How To Downsize For Retirement
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