Retirement Housing: Size and Price
By Gary Silverman, CFP®
I’ve been discussing how I decided to move from my old home to my current residence. The goal: to give you some food for thought when it’s time for you to decide where you’ll live out your retirement years.
At first, I considered a temporary bridge between our current home and our retirement home by way of a rental unit. Several downtown residences had caught my eye. But in examining this idea I had to consider whether the residences fit our stuff, our lifestyle, our personalities, and our budget.
I’ve watched and enjoyed the TV shows about tiny houses. It reminded me of my submarine days and how you could live well in a tiny cramped (well-organized) space. That said, the reality was that neither I nor my wife was interested in going from a 2,200-square foot house to 400-square foot one. It’s fun watching on TV, but so is Deadliest Catch. And I have no desire for 36-hour workdays in below-freezing weather in 40-foot seas (though I do like crab and no longer complain about the price).
The reality is that moving from a large house to a normal-sized apartment was not going to fit us well. In a way, this made things easier as the number of house-sized apartments is much smaller, thus fewer options to consider.
While that part of the decision’s process was going on, there was the question of budget. Being a financial planner, this was near and dear to my heart. So, I built a spreadsheet. What, budget-wise, would be the equivalent in rent to a home purchase? For instance, selling the house would give me a lump of money. What kind of income could I draw from that to pay for the apartment? I can add to that the money saved by not having to pay taxes or homeowner’s insurance (rental insurance is ridiculously cheap). But I’d also have to factor in that rents go up across time. How much different would my utility bills be? Did I need to consider storage for some of the items we’d want to keep for a future house but that wouldn’t fit in an apartment? Assuming no garage, would that lower the life-expectancy for our cars?
As you can see there is a lot that goes into comparing renting a downtown apartment compared to buying a house. That doesn’t mean you don’t do it, rather it means you do it, do it more, get outside opinions (consider the thousands of Internet articles on the subject, or call me), and then remember that to some extent you are guessing at the numbers.
After going through this process, I came up with a number that for our situation made a large “luxury” apartment as affordable as buying the types of houses we were considering. But that wasn’t the end-all. I’ll share more, next time.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.