“Location, location, location.” is often used as the benchmark to determining the most desirable and convenient places to live, whilst also providing the best potential for capital appreciation in the long-term. In retirement, however, these considerations become far less important and perhaps, for retirees, a new mantra of “cash flow, cash flow, cash flow.” should take precedence.
The vast majority of homeowners would prefer to age in place in their current home for as long as possible. People feel a deep emotional attachment to their homes. This emotional aspect of homeownership cannot be ignored in retirement, but it also cannot be the only consideration. In many cases, the current home is not financially or functionally appropriate for the homeowner to live in throughout retirement.
In addition to wanting to age in place, homeowners do not want to “backtrack” in retirement from owning to renting. Home ownership not only evokes a real sense of achievement but is also a tangible asset that will appreciate over time, and can be gifted to the next generation.So whilst, remaining in the family home is important so too is being able to enjoy retirement. This might mean improving cash flow is to move in order to free up equity or to reduce costs.
Downsizing is probably the most common housing decision made in order to free up cash as many retirees are living in homes that are too large, too expensive, and not fit for senior living. Downsizing to a more economical home that allows for ageing in place can be a viable strategy because it helps reduce ongoing costs and, at the same time, frees up home equity to support a more comfortable standard of living in retirement. Every year an increasing proportion of retirees are entering retirement with a mortgage; the required mortgage payments throughout retirement put a serious strain on cash flow and can cause a substantial financial burden and risk for the retiree. Downsizing can play a significant part in helping alleviate this issue, and whilst the new retirement property may not be so large, so too would be the overall debt that the retiree has.
So, when considering future retirement property options, cash should trump location in order to provide a more secure financial future.