Make a Housing Plan for Retirement

Location, timing, and finances are part of a housing solution that will meet your needs in later years.

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One of the major decisions facing us as we age is where to live in our later years. Anyone over 60 who has grown children should be developing a plan for where to live when they're 75, 85, and even older. Like solid retirement investment programs, your housing plan can be torpedoed by recessions and personal reversals. The current depression in many local housing markets doesn't help, either. But without a plan, you're leaving too much to chance.

[See 10 Ways Your Home Can Pay You Money.]

When it comes to housing decisions, the world can be divided into planners and reactors. An academic study that looked at how older people who have moved felt about it and how they fared makes it clear that you want to be a planner when it comes to housing decisions. In a 2009 study, Boston College's Center for Retirement Research (CRR) analyzed extensive information about moves made between 1992 and 2004 by people who were ages 51 to 61 when the federal government began collecting the information.

The study looked at all moves made during the period and reviewed the reasons people gave for relocating. Those who tended to be in control of their own move were classified as planners. They tended to move to get a better location or home because of retirement or financial reasons. People who said they had been forced to move because of family or health issues—the death of a spouse, a divorce, poor health—were classified as reactors.

Having a financial cushion is, of course, a strong planning aid that gives people some control over the timing of their move and the ability to execute their plan even in the face of some financial reversals. Given continued weakness in housing market, setting aside money to prepare for a move should be part of most housing plans. But so should doing some homework:

1. Where do you want to live?

2. What's the housing market like there?

3. How will the cost of homeownership change in your new home?

4. Can you afford these outlays in retirement?

5. What's the minimum amount you need to get from selling your current home?

6. What's the likelihood of receiving this amount, and are there home-improvement projects you need to undertake to increase the net proceeds from selling your home?

In the CRR study, planners tended to have choices and fared better even if confronted with the kinds of problems that forced reactors to move. Reactors didn't have the same range of choices. "Those moving for retirement reasons are more educated, better off financially, more likely to be married, and less likely to be in poor/fair health," researchers said. "Those moving for health or family reasons have the lowest educational attainment level, the highest incidence of poor/fair health, and the lowest level of income and wealth, as measured by Social Security, housing, and non-housing wealth."

[See How to Make Your Home Age-Friendly.]

Reactors lost an average of $26,000 in home equity when they moved. That's explained, in part, by the fact that a third of them did not buy another home and either rented or moved in with relatives. Planners, by contrast, gained an average of $33,000 in home equity when they moved, and only 18 percent of them did not buy another home. They had more choice and control, and wound up improving their financial situation.

Older people who felt forced to move tended to include those who were recently widowed or divorced and those diagnosed with a new health condition, researchers said. "Surprisingly, the other shocks—being hospitalized or reporting worsened health, entering into a nursing home, and losing a job—do not significantly impact the probability of moving in these households with at least one shock. Thus, again, it seems that family structure is a very important factor in these households' decisions to move."

During the period studied, about 30 percent of older people moved out of their homes, and major factors cited were family considerations, financial matters, wanting a better location or type of house, and retirement. Health was not cited as a major cause of moves, but researchers speculated that this might be because even the oldest people included in the study were only 73 when it ended.

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Among people who moved, about 60 percent stayed within 20 miles of their former home, 20 percent moved up to 200 miles away, and a comparable number moved farther away. A mass exodus to sunnier locales was not a major driver of relocation decisions. And aging in place continued to be the overwhelming first choice.

"Older adults that continue to live in the same home during older adulthood enjoy familiarity with the house, community, and neighborhood," the research said. "They feel more independent, are more socially connected, and experience less stress than older adults that change to a new residence. In contrast, moving is characterized as a stressful experience that may result in relocation trauma and symptoms of depression, anxiety, distrust, and insecurity."

For those who did move, planning for the change helped them come out in much better shape than people who felt forced to sell their homes because of one or more negative shocks. On the brighter side, both groups felt their moves improved their situations. But for reactors, that benefit often was overshadowed by the problems that forced them to move in the first place.

Twitter: @PhilMoeller