Wednesday, September 22, 2021

Where Should I Live In The Last 15 Years Of My Life?

COVID has changed everything – including where one wants to live in their later years.

In our work, many of our clients are thinking about and planning real estate changes as they get older.

Generally speaking, the options are:

  1. Stay where you are.
  2. Move from your current residence and buy somewhere that is easier for you physically.
  3. Move from your current residence and rent somewhere that is easier for you physically.
  4. Move in with younger family members in a three-generation home.
  5. Move from your current residence into some type of retirement residence.

In terms of COVID, my sense is that people are leaning a little away from the fifth option. It is entirely understandable, but maybe not the best long-term solution.

For this article, I will walk through some of the key discussion points that we have with our clients, and hopefully, they will be helpful as you contemplate next steps.

Stay where you are.

This is the easiest decision, but often not the wisest one. From a lifestyle perspective, it starts with where they currently live and if it will fit their future needs physically and emotionally. By physically, we look at their current health, their ability to navigate stairs, and their ability to manage the property. By emotionally, we look beyond whether they can physically manage things, but whether they want to? There is often an emotional attachment to a place that they may have lived in for a long time. In addition, one of the biggest reasons to stay is that they can’t fathom the amount of work it would take to actually move.

On the physical front, my sense is that people often stay longer than they should.  It, unfortunately, can take an accident that scares them, in order to take further action.

On the emotional front, it can be overwhelming to think about moving in many ways. By simply not moving, you are able to put off these issues for another day.  

There is no question that change is hard, especially as one gets older. Given that reality, it is even more important to have an honest review of where you currently live and whether it will be the right place for you over the next handful of years.

From a financial perspective, the main difficulty with this option can relate to two items. One is that in some cases, this more physically demanding option might lead to having to pay for personal care support that can be expensive. The bigger one is that this personal care is being paid for without the benefit of having sold a property that could help pay for it. Without having to go the reverse mortgage route (which I generally don’t recommend), there is often an ability to get some level of home equity line of credit put in place, even though there is likely no employment income. This can help manage the cash flow and budgeting. This is a much more cost-effective way of getting some liquidity from your home without having to sell it or use the potentially very costly reverse mortgage.

  • Move from your current residence and buy somewhere that is easier for you physically.

Most often we would see older clients selling their family home and moving to large condos or bungalows in the city and beyond. This can accomplish one goal of moving to a physically less demanding space and ideally would free up some cash as well. Of course, the freeing up of some money from the transaction depends on quality and location of where you are moving from and where you are headed to.  Unfortunately, in some cases, the hoped-for freeing up of cash doesn’t happen.  This can be the case when moving from an older home that needs significant updating, while moving into a new condo.

For many, the big hurdle of downsizing is the daunting task of purging ‘stuff’ and getting a house ready to sell. To help with this emotional and physical challenge, there are those who specialize in this hard transition. They start with a real estate agent who specializes in working with those who are downsizing. That agent can bring in people who specialize in decluttering and a transition team who will make the house look its best for sale and suggest either staging or minor improvements to increase market value. For most, this step is too difficult to do on your own or with children. An independent ‘third party’ can help make things happen in an unemotional way.

  • Move from your current residence and rent somewhere that is easier for you physically.

This has some of the same physical and emotional challenges as number two above, but it has a few differences. On the positive end, it does create significant financial flexibility. It also creates more flexibility for future real estate decisions without having to go through another costly real estate sale. On the negative side, after many years of ownership, renting can be a concern for some. This concern can usually be lessened if you are able to rent from a larger corporation as opposed to an individual who is more likely to want to ‘move in to’ or ‘sell’ your rental property at some point. The last quick concern is that this scenario moves money from the tax-free growth of your principal residence into investments likely going to be largely taxable. This will increase your taxable income and could have related financial consequences. 

As a result, I often recommend that people who expect to be in a home for at least six years, buy another principal residence rather than rent. To own for a shorter period might not make sense when one considers the extra costs of a buy and sell real estate transaction.   

On the financial front, it allows the equity in the house to be turned into a monthly income generator that can reasonably be structured to generate over 4% a year in income using dividend-paying stocks, preferred shares and possibly some other investments, such as mortgage investment corporations. This can often easily cover rental costs. There is also some additional flexibility to help children financially in a way that may have been difficult before.

  • Move in with younger family members in a ‘three-generation home.

This is an option that had become less popular over time, but is returning again, especially with COVID. Vivien Sharon, a Toronto area realtor and author of The Boomer’s 7-step Guide to Downsizing, has seen a bit of a return of three generations living together. “Feelings of isolation and loneliness are alleviated when grandparents live with extended family as they’re able to spend more time with their grandchildren, which in turn helps reduce childcare,” says Sharon.

This can be a great solution financially as well. Of course, the family situation has to be particularly well aligned to make this work emotionally, as I can only imagine what some readers would think of this option as it applies to their own children.

  • Move from your current residence and go to some type of retirement residence.

Under many scenarios, this remains a very good option. While COVID has increased some concerns with this decision, it can offer true independence for a long period of time. The biggest advantages are that food, bills, the property and, in some cases, laundry, are all taken care of by somebody else. For many that have had less social interaction living on their own, this can be a much healthier lifestyle with the option of being around others as much or as little else as they would like.

The cost can be high for some of the nicer retirement residences, but when you compare it to owning a property or renting a property, and all of the components that this covers, there may not be a significant increase in budget costs. At the same time, as in the sell and rent example above, the proceeds from a home can generate a sizable monthly income that may cover the entire cost.

The key to a successful real estate transition, in my view, is an open discussion with family and friends you trust and with outside experts. As one can see, there are a number of potential options. The key is that any decision is driven by you and is an educated one. Fear of change, fear of decluttering – ‘how will we ever get rid of all of this stuff,’ and fear of renting are not good reasons to stay in a home that is not well suited to the next stage of your life. 

There is no question that this is a hard discussion, but it can be one that leads to an improved life.

Ted Rechtshaffen, MBA, CFP, CIM, is president and wealth adviser at TriDelta Financial, a boutique wealth management firm focusing on investment counselling and estate planning. You can contact him directly at tedr@tridelta.ca.

Must reads

The Latest from YouAreUNLTD