Many baby boomers are nervous. Just as they are getting ready for retirement, they have seen their home values and equity eroded by a weak housing market. The first baby boomers turn 62 this year, but some have already retired, are working just part time or otherwise beginning to transition to the life they intend to have after their main career.
Will the current housing woes derail their retirements? Chin up boomers; you are probably in better shape to ride out the current housing slowdown than most age groups. Many boomers have considerable housing equity from years of appreciation, notwithstanding the past year’s declines in home values. In addition, more boomers own properties in the older, established neighborhoods that have been holding up best during the slowdown. Further, many boomers have accumulated greater personal wealth outside of their home equity than past generations, thanks to 401(k)s, IRAs and other savings vehicles. Realize, too, that one big financial benefit of giving up that full-time job is taking on greater significance: those who retire or cut back on work will suffer less from high gas prices than those who still make the daily commute.
Finally, many boomers have a few years yet before retirement, plenty of time for the housing market to stabilize and home values once again begin to rise. So most boomers should be able to weather the current housing market slowdown successfully, with their dreams intact. When the time for etirement comes, boomers will find they have housing options that retirees a couple of generations back could not have imagined. But with credit tighter than it has been in years, good financial planning is advised to be able to maximize those options. Just because we are focusing on baby boomers, don’t think that there isn’t relevancy for generations before and after the boomers. The market’s coddling of boomers’ gigantic demographic (estimated to be about 78 million people who were born between 1946 and 1964) from birth through every stage of their lives has brought benefits to all the succeeding generations (and even to the preceding, WW II generation). Thanks to extended life expectancies, many Americans from later age groups will have the chance to benefit from boomer-spawned innovations for even longer. Many boomers won’t be retiring immediately upon reaching their age of eligibility, more even than had been anticipated it seems. Many find life without work unimaginable or, for a while longer, necessary.
Eventually, though, most will retire. Where they will decide to live after retirement then becomes a decision of far-reaching importance.
Staying Put
Many boomers intend to stay where they have lived during their work life, putting great value on maintaining relationships with friends and family in their old neighborhood, a home they love and a community they feel a part of. Some boomers are caring for or monitoring the well-being of their parents or helping their children with the grandkids. These responsibilities stand in the way of a move to more traditional retirement areas, if, in fact, such a move were even in their plans.Those who decide they want to stay in their current home for as long as possible will want to make changes to make it more amenable for “aging in place.” This trend has become so popular that there are now several books written about doing it and there is even a National Aging in Place Council (NAIPC.org) to promote it. Modifications to your home that will enable you to age in place can be found at SeniorResource.com. Staying put means that you will be little impacted by the state of the housing market, unless you have plans to refinance and your current home value negatively affects those plans. There had been suggestions that a wave of boomer selling could depress the housing market. That doesn’t look likely now.
Those planning to stay in their present home should consider the benefits of restructuring their mortgage. The best time for a mortgage restructuring is while you are still working and your income is at its highest. While owning a home “free and clear” is a goal for many homeowners, keeping a mortgage can be smart. Having a lot of equity in your home reduces your investment diversification by heavily weighting your real estate “basket” and reduces your liquidity.
If you have paid off your mortgage, you should at least consider having an equity line of credit in place for emergencies. Even if you have other assets, they may not be as easily accessible as cash from an equity line. Homeowners who have paid down their mortgage substantially may want to refinance in order to lower their monthly payments or take out equity to create or add to their financial cushion.
Some homeowners who want to stay in their current home and could benefit from tapping some of the equity they have accumulated, but find that a traditional mortgage doesn’t meet their needs, might want to consider a reverse mortgage.
Downsizing
Some retirees, who no longer need the sprawling suburban home in which they raised a family, will look to move to a smaller, more efficient space. Downsizing in the same community or area can allow you to unlock equity in your old home while maintaining all your local relationships. Be sure to pay careful attention to the tax rules for a home sale. Those looking to downsize may want to consider an active-adult community, restricted to residents 55 or older. Developers in newer communities, reacting to a slow market in general and a slower rate of retirements are offering seniors substantial incentives, including assistance in selling their current home. These communities are not confined strictly to areas traditionally associated with retirement. Most major metropolitan areas now have one or more, and they are being constructed in many smaller metro areas, as well, providing a wealth of choices. To appeal to retirees and to lower costs, many builders are constructing smaller, more efficient homes, even outside of active adult communities. Increasingly, they are incorporating principles of “universal design” with master suites on the first floor, wheelchair- or stroller friendly doorways, etc.
Relocating
Many retirees will opt for a completely different atmosphere and lifestyle. For some, this means a resort location, such as a beach or mountain area. Many Americans, even some who are years away from retirement, have been buying second homes in these areas in the last few years with the intention of making them their ultimate retirement residence. That has helped to drive up prices. But now is a great time to find a bargain as these areas face a temporary slowdown. Once the market stabilizes, many will again see steady price climbs. College towns have been luring alumni and others with communities based on the diversity, culture and activities (including sports) of the educational environment. Now affinity communities based on themes as diverse as wine and cuisine, art and music and NASCAR are being created.
Golf communities were the original affinity model and there are plenty of them, perhaps too many. This is an excellent opportunity for a purchase in a golf community, many of which are over built and offering big discounts. © 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Finance®
