Q: My parents, who are nearing 70 years old, currently live in a large home they had custom-built when my brother, sister and I went away to college.
They are both retired, and the house is nearly paid off, even though it’s worth much less now than they had expected it to be at this point in time.
But it’s a lot of work for them, they have way too much space, and it’s very costly to maintain and repair — even the basic monthly bills like electricity are extremely expensive.
They just mentioned that they are interested in possibly downsizing to a new home in a 55-plus community.
They can certainly afford the home, if they are able to sell theirs, but I am concerned about the additional costs for homeowners association dues and that this community offers no assisted living or long-term care … facilities for them to move to if and when that time comes. What things should we be factoring in as we help them make this decision? –Alex C.
A: Age 55-plus communities ain’t what they used to be — some of these neighborhoods of vibrant, laughing, silver-haired yoginis, golfers and socialites offer lifestyle amenities so desirable they make some of us 30-somethings a tad bit jealous.
If your parents want to simplify their lives so they have time for the fun they deserve to have at this stage of the game, it’s no wonder one of these areas appeals to them.
Generally, when I’m talking or working with someone your parents’ age who is in good to great financial shape, I don’t push back too hard on lifestyle decisions they want to make.
If they’ve been relatively cautious, have prospered most of their lives, and are generally on sound financial footing, they’re not likely to start making stupid decisions now, nor is now the time to hold back and plan on waiting five or 10 years to do what they want to do.
But you’re correct that there are some important considerations you can help them process.
Here are a few:
1. Selling at the bottom of the market locks in their losses on their current home. Fortunately, they’ll be buying at the bottom of the market, too (see No. 2, below), so it might be less of a financial hit than it seems, at first glance.
But if the projected value of the home was the basis for the rest of their financial and estate plans, selling it now to fund the purchase of the new home might be problematic.
Talk with several, local real estate brokers who have successfully and recently sold homes in your parents’ neighborhood to get an estimate of what the home will sell for, and talk with your parents’ estate planners to revise the math in their plan based on the current market value of their home, the rough purchase price of the new home, and the estimated net change in their monthly expenses — saved maintenance costs and operating costs, offset by the homeowners association dues you’re concerned about — if they move, to understand how the other line items in their retirement plan will change.
2. It might be difficult to resell the home because of limited buyer pool. Homes in senior communities can be somewhat more difficult and take more time to sell than "regular" homes because the buyer pool is smaller and the numbers of retirement-aged people with the money to buy newer homes is limited.
Frankly, though, depending on where they live, it might also be difficult to sell their existing home.Work with a local agent sooner than later to get a sense for the average number of days a home stays on the market in your parent’s neighborhood, as well as to sequence their buy and their sale sensibly.
As such, it’s critical that your parents buy low — taking maximum advantage of the current market dynamics and the cash crunch in which many new home developers find themselves in.
3. Use the financial transaction and the physical home move as an opportunity to have a larger conversation and get organized. Talk with an estate planning attorney about how your parents should take legal title to the home, and how it should be addressed in their legal estate planning documents. Get some clarity on their health care coverage and plans.
Do they plan to age in place (i.e., hire home health care workers), move in with you, or move to a more health care-intensive community or institution? You might be worried about issues they already have resolved; vice versa, they might not even be thinking about these items yet.
Author’s note: Wall Street Journal writer Jeff Opdyke, in his new book, "Protecting Your Parents’ Money: The Essential Guide to Helping Mom and Dad Navigate the Finances of Retirement" (Harper Paperbacks, 2011), offers a thorough coverage of the issues you and your parents can and should discuss and address in the course of this conversation, including all of the above, as well as details like the key documents you and your parents should collect in one place (your parents’ move would be a great time to handle that), how to vet a home health care worker and how to make decisions about the various health coverage options available to them.