We spend decades sweating, analyzing, investing and planning our retirement equity. Interestingly, most of us spend comparatively little time planning how we plan to “live” in our home through retirement. It requires significantly more planning than went into the decorating the first baby’s nursery a few decades ago. Delaying tangible planning is a recipe for serious trouble down the road.
For most, the home is a vital cornerstone of their investment portfolio. What’s unique about the home from other investments is that it serves as both equity and day-to-day practical use. Both are extremely important, and both need to be considered in any retirement planning. Let’s take a closer look at how the home fits into the retirement plan.
When talking to clients’ about retirement savings, most financial advisors recommend something like:
“Reduce risk in your investment portfolio in later years, to help protect your retirement lifestyle from inevitable market events.”
Change one word in the above sentence and replace “market” with “health”. Seem like sound advice? It should, because health events are more certain and likely to have a bigger impact on lifestyle. Health events are a normal part of the aging process. Like market events, we don’t know when they are going to occur, but planning they won’t is risky behavior, at a time in life when we should be trying to reduce risk.
What’s the plan to deal with the home after we’ve encountered a health event? Is this the time we really want to be considering dealing with moving or making house renovations to address reduced limitations? These are times of very high stress and often the times when people get forced out of their home because they failed to plan adequately. An added consequence is that the financial plan goes out the window and spending is markedly increased, initiating a domino effect that can quickly overwhelm not just the person(s) directly involved, but also numerous additional family members, friends and neighbors. These people are an important part of our community support network, but relying on them for sustained support can be a challenge for all concerned.
Don’t be a casualty of poor retirement planning
One of the rewarding aspects of our work is to activate our clients’ to include their home-life into their retirement plan. The equity number on a spreadsheet transforms into a meaningful, resilient Home Plan that is prepared to deal with health events well in advance. The overall retirement plan gets much more robust because it now considers probable health and living scenarios and presents an opportunity to plan and deal with them in times of low stress. The added benefit is that it results in alterations to the home that improve the quality of home-life immediately. Removing barriers, opening up spaces and improving the overall livability of the home benefits every age and ability and results in improved home equity, as these are attributes that are highly desirable to buyers of all ages.
Several polls over recent years indicate that the vast majority, about 85% of people, indicate strong preference to live out their retirement years in their own home. So what’s required to live out our retirement at home and avoid losing control of our home choice?
The most important step to take is to start an actual Home Plan. It’s hard to start too early, but it’s easy to start too late. By the time we’re in our fifties, most of us are already in the home we’ll retire in. We chose the location for purposeful reasons and developed connections in the immediate community that are usually vitally important to us throughout retirement. There’s a strong argument to get a plan started in our fifties and make some key investments in the home while there is still a steady employment income stream. It might seem early, but consider the big picture plan. It’s easier to deal with changes in an investment strategy while still working. We might choose to work a bit longer, if the rewards throughout retirement are going to be realized for many years.
Jumping into a renovation during retirement can be reasonable, but for some, it’s harder to make the investment after the employment income stream is gone. It’s human nature to fear spending on anything, other than grandchildren, once the earning tap has been switched off. It’s not wrong to restrict spending, it’s just the wrong mindset. We need to remember that the home livability is foundational to the retirement plan and adopt an investment mindset. Done well, home improvements that improve livability also add significant equity, ensure an ability to live in the home longer, and improve lifestyle throughout retirement.
In future articles, we’ll discuss specific elements of the Home Plan, and how it fits into the retirement plan, as well as offer some thoughts on a range of improvement options.