Buying A Retirement Home vs. Renting
Once you make the decision to retire, one important issue becomes retirement housing. This decision requires a look at your monthly cash flow and budget to determine where your money is best spent in the retirement context. The options include:
1. Remaining in your current city in your current home;
2. Downsizing either into a newly purchased smaller home or rented apartment in your current city;
3. Moving into a retirement community within your current city;
4. Moving to a new community and either buying a new home, renting a home or apartment, or moving into a retirement community;
The issue becomes how your probably fixed retirement income can best be put to work for you. Many people believe that just staying in their current home is the best solution. This may or may not be true depending on a number of factors. The way to get to the truth of the matter is to prepare a budget on your current home expenses and compare it to the alternatives of downsizing by purchase or rental, or moving into a retirement/assisted living community. The point of doing this is to get past the general assumption that aging in place in your current home is cheaper and better for your health than any other alternative. Often the reality is shown in the numbers, and remember, numbers do not lie.
There are at least four types of home expenses. Those directly associated with ownership of your home, those that you choose to pay as a result of owning your home, those that you cannot realistically avoid as you age in place in your home, and outside services and activities you choose to participate in off premises. Taken together, these expenses often far exceed what you believe off the top of your head. A calm, cool, and direct evaluation of these numbers often surprises those who take the time to thoroughly evaluate them. After all, the goal is to reduce your monthly retirement expenses to a sustainable level for what may be an extended period of time. We are all living longer than our ancestors did, and we therefore need to rethink our retirement planning to allow us to live comfortably for an extended period of time on our now fixed income.
Here is a budgeting tool to get you started on this evaluation. The point is to include everything home ownership entails, compare it to what reductions in budget we can expect from renting, and/or compare it to the reductions we can expect if we choose to move into a retirement/assisted living community. We start with a living at home expense budget column, followed by a renter’s budget column, which is followed by a retirement/assisted living community budget column. The list of expense responsibilities shrinks as we progress down this line of inquiry.
OWNING YOUR HOME:
EXPENSES DIRECTLY ASSOCIATED WITH OWNERSHIP OF YOUR HOME:
1. Mortgage Payment:
2. Condo/Association Fees:
3. Property Taxes:
4. Property Insurance:
5. Utilities: Gas:
Water:
Electric:
Garbage Collection:
6. Household Maintenance: _______________
TOTAL: $_______________
EXPENSES YOU CHOOSE TO PAY AS A RESULT OF OWNING YOUR HOME:
1. 24-Hour Security System:
2. Lawn Care:
3. Housekeeping/Maid Services:
4. Cable TV:
5. Telephone Service:
6. Meals/Food/Beverages:
7. General Transportation Costs: _______________
TOTAL: $_______________
EXPENSES THAT YOU CANNOT REALISTICALLY AVOID AS YOU AGE IN PLACE IN YOUR HOME:
1. Emergency Call System:
2. Caregiving Fees:
3. Transportation Services Due To Aging: _______________
TOTAL: $_______________
EXPENSES FOR OUTSIDE SERVICES AND ACTIVITIES YOU CHOOSE TO PARTICIPATE IN OFF PREMISES:
1. Health Club/Exercise Classes:
2. Social/Cultural/Recreational Events:
3. Restaurant Meals: _______________
TOTAL: $_______________
GRAND OWNERSHIP TOTAL: $_______________
RENTING RATHER THAN OWNING YOUR HOME:
EXPENSES DIRECTLY ASSOCIATED WITH RENTING A HOME/APARTMENT:
1. Rent:
2. Condo/Association Fees: (Included)
3. Property Taxes: (Included)
4. Renter’s Insurance:
5. Utilities: Gas:
Water:
Electric:
Garbage Collection:
6. Household Maintenance: (Included)
TOTAL: $_______________
EXPENSES YOU CHOOSE TO PAY AS A RESULT OF RENTING YOUR HOME/APARTMENT:
1. 24-Hour Security System:
2. Lawn Care: (Included)
3. Housekeeping/Maid Service:
4. Cable TV:
5. Telephone Service:
6. Meals/Food/Beverages:
7. General Transportation: _______________
TOTAL: $_______________
EXPENSES THAT YOU CANNOT REALISTICALLY AVOID AS YOU AGE IN PLACE:
1. Emergency Call System:
2. Caregiving Fees:
3. Transportation Services Due To Aging: ______________
TOTAL: $______________
EXPENSES FOR OUTSIDE SERVICES AND ACTIVITIES YOU CHOOSE TO PARTICIPATE IN OFF PREMISES:
1. Health Club/Exercise Classes:
2. Social/Cultural/Recreational Events:
3. Restaurant Meals: ______________
TOTAL: $______________
GRAND RENTAL TOTAL: $______________
EXPENSES IF MOVE INTO A RETIREMENT/ASSISTED LIVING COMMUNITY:
EXPENSES DIRECTLY ASSOCIATED WITH LIVING IN A RETIREMENT/ASSISTED LIVING COMMUNITY:
1. Rent:
2. Condo/Association Fees: (Included)
3. Property Taxes: (Included)
4. Renters Insurance:
5. Utilities: Gas: (Included)
Water: (Included)
Electricity: (Included)
Garbage Collection: (Included)
6. Household Maintenance: (Included)_______
TOTAL: $_______________
EXPENSES YOU CHOOSE TO PAY AS A RESULT OF OWNING OR RENTING YOUR HOME BUT DO NOT HAVE TO PAY IN A RETIREMENT/ASSISTED LIVING COMMUNITY:
1. 24-Hour Security System: (Included)
2. Lawn Care: (Included)
3. Housekeeping/Maid Services: (Included)
4. Cable TV: (Included)
5. Telephone Service: (Partially Included)
6. Meals/Food/Beverages: (Included)
7. General Transportation Costs: (Included)_______
TOTAL: $_______________
EXPENSES THAT YOU CANNOT REALISTICALLY AVOID AS YOU AGE IN PLACE IN YOUR HOME OR APARTMENT:
1. Emergency Call System: (Included)
2. Caregiving Fees: (Included)
3. Transportation Services Due To Aging: (Included)_______
TOTAL: $_______________
EXPENSES FOR OUTSIDE SERVICES AND ACTIVITIES YOU CHOOSE TO PARTICIPATE IN:
1. Health Club/Exercise Classes: (Included)
2. Social/Cultural/Recreational Events: (Included)
3. Restaurant Meals: (Included)_______
TOTAL: $_______________
GRAND TOTAL ASSISTED LIVING: $_______________
If you make realistic entries in this budget comparison, you will have a better tool to help you make the money smart choice of how you can best utilize your retirement funds. Most people are surprised to learn just how expensive aging in place can be. This Budgeting exercise can be modified to include the cost of purchasing a new home as part of your retirement plan, as the home ownership column can be used prospectively to compare with the other options.
It is also important to realize that under some circumstances, the medical care component of assisted living costs can be tax deductible to the senior, or to their children if they are able to claim the senior as a dependent and are paying the cost of such care. This can significantly reduce the cost of assisted living when the tax effects are taken into account. This is a complicated area, and requires the help of a tax expert to figure out your best options. I will expand on this issue in later posts to my Blog Site. For our purposes here, keep in mind that depending on the amount of your care plan that is a medical expense may reduce the cost factor for moving into assisted living even further than it appears here on an after tax basis.
All of us facing retirement must also recognize that our health and safety are of paramount importance. The choices we make on whether to age in place rather than move into a retirement or assisted living community can come back to haunt us. When we age in place at home, the chances of being injured and unable to call for immediate medical help are much higher than if we are in an assisted living community. In addition, the probability that we will get injured trying to do our home chores or maintenance are much higher as we age in place. We can gain peace of mind by doing realistic self evaluations, and plan for our best financial as well as health and safety needs now, when we are capable of making our own rational decisions. Waiting for the future to sort itself out will only put us at greater risk.
If you have any question or comments please contact me through the numbers at the top of the Blog Site, or through the social media sites in the right hand column of the Blog Site.
