Blog posted On November 03, 2021
Many working-age people dream of the day that they can someday retire on a sunny beach. But as we get older, it seems that our preferences and priorities change. According to AARP, more than 75% of adults aged 50 and above prefer to stay in their current home. It’s natural to want to stay in an area close to family and friends. However, maintaining a home in retirement can be a difficult and costly endeavor. Luckily, there are ways you can prepare for these financial adjustments.
Here are three strategies that can help you save money while maintaining a home in retirement.
Property taxes have been climbing along with home prices. In 2020, the average U.S. property tax bill was 4.4% higher than in 2019. Typically, homeowner’s salaries will keep up with the pace of inflation. But retirees who don’t receive a yearly salary might have a harder time with rising prices. The rising prices of property taxes are specifically one of the bigger hurdles for retired adults. One of the main sources of income for retirees is Social Security. Every year, the Social Security administration evaluates the pace of inflation to determine how much Social Security checks will increase. This sounds like good news, but unfortunately it doesn’t always keep up with soaring home prices and property taxes.
Property taxes are based on your home’s value. If home values are skyrocketing, the cost of your property taxes will rise as well. “So, if you’re relying solely on Social Security, then your income just grows with the average wage index, and your property taxes rise at the rate of home values,” says Geoffrey T. Sanzenbacher, a research fellow at the Center for Retirement Research at Boston College. “[For] lower- and middle-income folks -- home prices rise faster than wages.”
Luckily, most states have different property tax assistance programs for older adults. The types of programs available depend largely on where you live. But it might be worth investigating. Some programs will even let you do for your property taxes until you sell your home.
Homeowners typically need to budget 1% to 4% of their home’s value for annual maintenance costs. For a $300,000 home, this would be around $3,000 to $12,000 each year. The longer you put off any maintenance, the higher the cost. Also, if your home is older, it will likely require more updates and fixes. “A 100-year-old home, if it's had any deferred maintenance because of fixed incomes that come with retirement — roofs, electrical, porch, plumbing, all those things need to regularly be maintained,” says Mary McNamara, director of aging for the city of Cleveland. “But then the issue of how do we also modify a home so that people can live on one floor, whether that's adding lifts or wheelchair ramps, making bathrooms accessible.” Certain cities, like Cleveland, have programs that can help eligible seniors pay for home repairs.
One benefit of rising home values is rising home equity. With a reverse mortgage you can convert some of this equity into payments. “What makes it reverse is that the borrower, instead of getting a large amount of money upfront and paying it off over time, receives money in a variety of possible ways and doesn’t have to repay it until he leaves the house or dies,” says Jack Guttentag, retired economist. Another good option could be downsizing. This way, you could have lower property taxes and fewer maintenance tasks to worry about.
If you would like to explore more financial home loan options in retirement, let us know. If you would like to compare payment scenarios, visit our mortgage calculator page.