Yes, you probably can afford that retirement home after all

by Philip Springer

Philip Springer is an investment advisor for people in or approaching retirement.  Phil has also written about real estate, taxes and other key financial topics for 30 years.  He and his wife are currently considering an eventual move "from the cold, expensive Northeast to the warmer, charming, less costly Charlottesville, VA, area."

    Back in the late 1980s, my wife and I lived in a three-bedroom condominium in a New York City suburb.  I knew two older couples in the community who wanted to retire to warmer, lower-cost areas in the south. So they placed their homes on the market.
    Fortunately, these owners had built up considerable equity in their homes over many years, particularly because of an economic boom in the '80s that had fueled a strong rise in property values in our area.  Unfortunately, both couples refused to budge much from their unrealistic asking prices, which were based on peak 1987 conditions, even though they still would have locked in big profits.  A recession arrived in 1990, home prices tumbled and these owners sat through more cold winters, likely thinking of what might have been.
    One couple finally sold out for significantly less. The other couple was still shivering when my wife and I sold our place there in order to buy our first house, in another community with good schools for our two children.  We got less than we wanted when we sold.  But we still did OK.  And we had learned a valuable lesson from those two couples' big mistake:  Sometimes you just need to move on with your life.
    Sad to say, I see many couples who are in or near retirement making the same mistake today.  They're holding out for what they think their home "should" be worth instead of doing what they really want to do.  But I'm here to tell you why, from a financial standpoint, you may well be able to relocate if you really want to.  At this stage, life is too short to stay put when you could be enjoying yourself elsewhere.
    Living expenses in the south usually are considerably less than up north, particularly if you now live in such expensive metropolitan areas as Boston, Chicago, New York, Philadelphia and Washington DC.  First, consider housing. You can probably buy a similar home for at least 25% less than the value of your present residence. And the discount may be much bigger.
    For instance, I estimate that if we buy a home in Charlottesville, which is considerably more expensive than the national average, it would cost less than half of what it would in the high-priced New York town where we now live.  If your current home is all or nearly paid up, that would also free up a significant amount for prudent long-term investment.
    There's no denying that home prices have dropped significantly just about everywhere over the last two or three years. This means you'll get less when you sell. But it also means your next home will cost less.  It's also true that home prices probably haven't hit bottom yet.  So let's assume that prices fall at equal percentage rates up north and down south.  Then the higher-cost home - the one you're living in now - would lose more value.  In that case, the longer you wait to sell, the less you'll be able to afford when you buy your next home in your retirement Eden.
    If, like many retirees, you want to downsize, your savings will be even greater.  The cost of a nice 2,500-square foot residence in an attractive golf community is likely to be considerably less than a 3,000-square foot home, say, in suburban Boston.  What if you finance some or most of your home purchase? Home-mortgage rates are sitting at historic lows of about 5% on 30-year fixed loans. You may well be able to lock in a lower rate than on your current mortgage, if you have one.
    Next, look at taxes. Our property taxes alone will decline by more than $10,000 a year if we move from New York to Virginia.  Our state income tax will also drop.  Most goods and services will cost less too, ranging from health care and utilities to food and entertainment.  All told, I estimate that we'll save at least 25% a year and maybe more by moving.  But as important as the lower cost of living is, the primary reason we're likely to head south is because we want to change our lifestyle.  We look forward to the prospect of spending the next stage of our lives in a beautiful, vibrant area near one of the nation's leading state universities, the University of Virginia, as well as some excellent golf courses.
    Your vision may be different.  But what are you waiting for?
    In future articles in this space, I'll provide guidance on how to sell your home, even in a tough market; and how to take advantage of the buyer's market to get a great retirement home at the right price.

Philip Springer is a leading authority on building and enjoying a rich retirement.  He is President of Retirement Wealth Management, Inc., an independent, fee-only investment service.  Phil also is Editor of Leeb's Income Performance, an advisory publication for income, growth and asset protection. You can contact Phil at This email address is being protected from spambots. You need JavaScript enabled to view it..