It’s a big decision — and mistakes could be costly. Here’s what you need to know.
WHERE WILL YOU LIVE when you retire? It’s a question that you — or your parents— might be thinking about.
Even if you’re madly in love with the home you’ve built your life in, there may come a time to consider moving somewhere new — perhaps into something smaller or closer to family.
If a retirement community is an option under consideration, there’s no shortage of choices. Communities catering to people 55 and older are showing steady growth. Builder confidence in 55-plus communities remains high, according to the National Association of Home Builders.1
Yet, just because there’s plenty of age-restricted housing, that doesn’t mean it’s right for you — or for your parents. For starters, there are major financial implications. Will a home in a particular community hold its value? Will your family be able to sell it easily and at a good price? Beyond those issues, you’re also choosing a place where you’re likely to spend your remaining years.
So, how do you know you’re making the right choice? Here are seven questions to answer before making a purchase.
An age-restricted community may feel odd if you’re used to having younger people in your neighborhood. You might also find there are restrictions regarding children and grandchildren, says John Brady, co-author of Baby Boomers Guide to Selecting a Retirement Community and founder and editor of Topretirements.com. “There may be rules about how long the grandkids or visitors under age 55 can stay with you,” he says. And what if you have adult children who need to move home while they look for work? Find out whether the community’s rules will allow you to take in an adult child for an extended period.
Closely review the covenants, conditions and restrictions of the homeowners association (HOA). There may be rules about what changes you can make to your house or even what color you can paint your front door, Brady says. More crucial might be questions relating to your estate plan, says Debra Greenberg, director, Personal Retirement, Investment Solutions Group at Bank of America. If you plan to leave your home to your children or other younger family members, they may inherit HOA dues or condo fees associated with owning the residence or other encumbrances of the community, and the age restrictions could complicate their ability to live in the community. It’s a good idea to discuss this asset with your attorney and spell out how you want it managed in your estate plan before you buy, Greenberg suggests.
Out-of-pocket expenses for these communities may go far beyond the price of the house and association dues. Additional costs such as special assessments and fees could be an unpleasant surprise. You could also find yourself paying extra to use amenities such as golf courses or tennis courts. Keep in mind, too, that future renovations or repairs could cause your dues to rise unexpectedly. “Talking to current residents about add-ons — and about how much costs have risen in the past — can help you know what to expect,” Brady says.
You may find additional clues if you ask to see homeowners association minutes and audited financial statements. The minutes can give you a sense of how well your prospective neighbors get along and alert you to ongoing community concerns. The financial statements will show whether the association is financially solvent. If the community lacks funding to maintain its pool or golf course, for example, you might be hit with a large assessment a year or two after you move in.
Once you have a reliable estimate of total costs, consider whether you can afford them, says Greenberg. “You don’t want to be strapped for cash or forced to dig into your savings principal,” she notes. If the numbers don’t add up, you may be better off in a community that offers the amenities you truly value, without the cost of extras you don’t.
One important factor is whether you’re buying a condominium or a single-family home, because the latter tends to fetch higher prices. Also consider the relative health of the local housing market. If homeowners in the community you’re investigating are having trouble staying current on their mortgage payments or association dues, it could lead to foreclosures and depressed prices. “If the homeowners association can’t provide this information, this is a warning bell you should listen to,” Brady suggests. It’s also worth looking around the area to see how other properties near the community are faring, because those also could affect your investment.
If you choose to buy, you’ll need to decide whether to pay cash or finance the purchase, says Greenberg. If you’re selling another home, it may seem simplest to use the proceeds to buy the new one outright. Depending on your tax and income needs, however, it might be better to use part of the cash from the sale as a down payment and finance the balance with a mortgage. It’s important to check with your tax advisor about your options.
Your prospective community may offer an award-winning golf course but check to make sure there’s also a respected community hospital or academic medical center nearby. Ask residents about their primary care doctors and specialists and check the state and national ratings of hospitals, says Brady. If you want a community where you’ll have easy access to care as needs increase, a continuing-care retirement community could offer a smooth transition from independent housing to assisted living or 24-hour nursing care, all in one place. Keep in mind that having medical services on the premises generally results in higher costs than you would pay in other retirement communities.
As with any major financial decision, buying a home in a retirement community isn’t a decision to make in isolation, says Greenberg. Balance the cost of your new home against the things you most want to accomplish. It’s all part of the process of reviewing potential trade-offs before you buy, rather than after, she adds. “This is where it’s really helpful to be forward-thinking.”
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