Homeownership & Retirement Planning, Article 1

The American dream has often revolved around owning a home: a place to plant roots and build a future.  While homeownership is a huge source of pride and stability for many individuals, most people fail to understand the impact of homeownership in their retirement.

Typically, the affordability of a home, according to some realtors or mortgage brokers, is significantly different than the opinion of a good financial planner.  A good financial planner considers homeownership inclusive of your retirement lifestyle goals; it is not just about what you can afford, but what you want to afford.  At Pathfinder Wealth Consulting, our comprehensive approach takes into account all aspects of your financial life to see how homeownership in retirement may or may not impact your long-term plans. Do you want to have more discretionary money to travel or do you prefer spending time at home?  Do you want to spend your mornings landscaping and working through projects, or walking on the beach and spending time with your children and grandchildren?  Life is short, particularly in retirement, so you should consider what you want to do with your time first, then determine affordability.

As CERTIFIED FINANCIAL PLANNER™ professionals, our process of helping clients navigate the path to retirement includes a full picture idea of the true cost of homeownership and how it may affect your retirement.  Most people are diligent about budgeting for ongoing fixed expenses like HOA dues, insurance, and taxes. We take a deeper look into these expenses, how they may change over time, and factor in variable expenses like routine maintenance and special HOA assessments. For example, due to our proximity to many beautiful waterfronts and coastlines, insurance coverage has an above average inflation rate in our area. It also causes faster deterioration of HVAC units, roofs, and siding. Additionally, the new tax laws are designed so that most people will be taking the standard deduction instead of deducting mortgage interest separately on their tax return. These are all factors that impact your financial bottom line, and ultimately your retirement lifestyle.

While most clients are not surprised to hear that their home is their biggest asset, many fail to acknowledge that it is also their biggest expense.  While some annual expenses are fairly predictable, a lot of people underestimate the ongoing maintenance costs of homeownership. We use a range of approximately 2-5% of a home’s value as the recurring maintenance cost, depending on the specific home and factors such as age, location, etc. You may not have any major expenses on your home one year, but the following year your HVAC system may go out or you may decide to overhaul your landscaping. While you may plan for annual HOA dues, there may be unexpected HOA assessments for community-wide projects. With that in mind, we take a look at the recurring average cost of maintenance, not just annual expenses of one year in particular. Unexpected expenses and failure to project costs can be a big risk to your retirement.

While owning a home is still a huge goal for a lot of people, times are changing, and we have seen a shift in focus away from homeownership, especially in our aging clients.  If you are ready to dive deeper into your financial plan and take a comprehensive look at your long-term goals, we encourage you to give us a call at 910-793-0616 or visit our website at www.pathfinderwc.com for more information.

This is the first post in a two-part series on the impact homeownership may have on your retirement planning. This article was originally published in the July 2018 edition of WILMA Magazine.