According to an AARP poll, nearly 90 percent of people over age 65 want to stay in their home for as long as possible, while 80 percent believe their current residence is where they will always live. But is aging in place really a feasible retirement plan for the vast majority of seniors?
In some cases, a reverse mortgage may provide the income boost needed to maintain residence in one’s long-time home. This post outlines some of the often overlooked costs of keeping a family home, so you can plan better and review your financials carefully before making a reverse mortgage decision.
Remodeling Costs for Aging in Place
No one likes to think about when and how their physical abilities will decline, but if you’re considering a reverse mortgage (especially on a home with stairs, narrow doorways, basement laundry facilities, etc.), you can’t afford to ignore certain logistical realities. At some point you may require a first-floor master suite, raised toilets, an outdoor ramp entry, and other modified home features. A recent article from MarketWatch includes the following estimated costs:
- A curb-less shower: $8,000 – $10,000
- Widened doorways: $1,700 – $2,500 (per doorway)
- Overall home remodeling average: $70,000 – $100,000
Still, it’s hard to put a concrete number on remodeling costs without doing some individualized research. Your best bet is to consult with a few contractors who specialize in accessible home remodeling. Identify potential projects in your home, and assign estimates to each one. For reference, the National Association of Home Builders (NAHB) provides this Aging-in-Place Remodeling Checklist along with a database of local professionals.
Travel Costs
If you decide to hang up your car keys at some point in the future, how will you attend appointments or accomplish day-to-day errands? Relying on friends and relatives is not a sufficient strategy, as people’s work schedules and family commitments often change. Instead, aging-in-place plans should include a budgeted amount for transportation—which may include taxi/Uber service or black car service to out of town destinations (e.g. doctor appointments in the city). If you have children or grandchildren in far-flung places, you may also want to review average airfare costs, and weigh these against the cost of selling your home in order to relocate nearer to loved ones.
Taxes and Cost of Living
Not all states are equal when it comes to tax policies that affect seniors. Before you pursue a reverse mortgage, it’s a good idea to look at the tax consequences associated with aging in place. Together with your financial advisor or CPA, address questions like:
- How do my current property taxes compare to those in other states/zip codes where I may wish to live?
- Are there any property tax breaks available here for seniors?
- Are my Social Security benefits being taxed?
- Are my other forms of retirement income being taxed (e.g. IRAs and pensions)?
- Is there a state-imposed estate tax (in addition to federal tax)?
Research from Ameriprise recently found that 26% of retirees were surprised at how expensive retirement can be, citing healthcare, food, taxes and travel as the primary culprits. According to another survey, roughly one in five retirees ended up moving in retirement although they hadn’t originally planned to do so. Experts suggest such relocations are likely the result of underestimated living expenses, and seniors looking for more affordable rates on things like groceries, utilities, and services.
Conclusion
There are numerous reverse mortgage pros and cons that homeowners need to consider. On the plus side, unlocking home equity and converting into spendable cash may help support your family’s aging-in-place goals. But the decision shouldn’t be made without a complete analysis of your financial picture and related aspects of your retirement plan.
Cash Flow Options for Fixed Income Seniors: Reverse Mortgage or HELOC?
