Looking at The Whole Picture in Retirement

When it comes to big financial decisions for your future, are you comfortable that your retirement plan considers “The Whole Picture”?

If your retirement goals include significant financial changes, such as paying off your mortgage or buying a second home, you’ll need to know what effect they’ll have on your retirement plan. In this post, we’ll show you how to find out if your real-estate goals are financially affordable and how a retirement income plan can help.

What to consider if you’re nearing retirement and buying a second home

Many people approaching retirement look to buy a second home, but whether their new home is in the mountains or the beach, the questions retirees ask are the same.

Firstly, you’ll need to know if you can afford to buy a second home. Secondly, you might want to find out if a second home is a good or a bad investment. Either way, buying a home will affect your retirement plan.

Often, the reasons for buying a second home are very emotional. A retirement income plan can help you work out if you can afford it so that you can make those happy memories.

If you've already found your potential second home and know what your mortgage payments will be, you can add this to your existing expenses. Your retirement plan can then show you the impact that this additional mortgage will have on your term. This way, you'll be able to see clearly if you can reasonably afford to buy this home.

What if you want to buy – and then sell – a second home?

While many people enjoy the thought of owning a second home, many only want to own it for a short period. We often speak to people who want to buy a second home to use for 10 to 15 years and then plan on selling it in the future.

This can raise many questions, especially if you’re unsure if it’s a good investment. In terms of your retirement plan, it can feel unsettling to spend a lot of money on a second home, leaving you with fewer cash reserves than you’re comfortable with.

But if you’re planning to sell that home, a retirement income plan can anticipate the cash returning to your account. If you keep that home for some time, whether that's 10, 15, or 20 years, we can assume some appreciation of the real estate's value. So, when you eventually sell that property, you may end up with more cash reserves than you started with!

Your retirement income plan should help you decide if buying a second home is possible for you and your family. If it is, then you can move forward with the process with financial confidence.

When paying off your mortgage should be a priority

Paying off your mortgage can feel like a very important emotional goal. If you’ve got the cash in savings, or if you’re getting close to retirement, you might not want to be making those payments anymore.

But does it make financial sense to pay off your mortgage before you retire?

If you’re not yet retired, you should consider paying off your mortgage in terms of your current cash flow. If your cash account has a lower interest rate than your mortgage, it could be more financially beneficial to pay off your mortgage first. Find out the percentage you’re paying of the remaining mortgage amount and consider if your cash savings are bringing in that same (or higher) amount to your account every month. If not, then it’s a no-brainer to pay off your mortgage.

For retirees, cash flow is king. Mortgage can be a high percentage of your monthly expenses, so it’s crucial to find out if paying it off will financially benefit you in the long term. A retirement income plan can help you find out what your total asset value will be at the end of your retirement term, both with and without your mortgage payments.

If your asset value is higher with the mortgage payments, it could make more financial sense to continue making your payments. But if there isn’t a great difference in cash flow, it comes down to your emotional decision.

While we always encourage people to make the decision that they’re happiest with, we also want to make sure that you’re in the best financial position possible. So, we strongly suggest discussing whether paying off your mortgage is financially suitable for you with a retirement planning advisor.

How to financially plan for moving into a retirement community

Retirement communities are a popular choice for many retirees, and you should factor these costs into your retirement plan as early as possible. Retirement communities can have long waiting lists of two years or more. In that time, they require a down payment to guarantee your place and a later, additional charge, which can amount to a large percentage of the total community buy-in cost.

Typically, retirees considering this will own a home that they’re planning to sell once they relocate to the retirement community. However, you won’t have access to that cash until later, so the down payment needs to come from elsewhere.

You might decide to take these payments out of your existing asset base. You can then replenish your savings after the sale of your house. But it’s worth remembering that retirement communities often come with a monthly cost, like rent, that will reduce your assets over a longer period.

If you’re anticipating long term healthcare needs, you should factor these costs into your retirement income plan. This will help you decide if a retirement community is a financially viable choice for your future.

How a bespoke retirement income plan can cater to your individual needs

There are so many unique situations as each individual moves into retirement, and real-estate planning can feel like an additional complication. That’s why we create customized retirement income plans for every individual and their situation.

We design a plan that can give you financial confidence in your property decisions by taking into consideration all of your income sources, including:

  • Social security
  • Pensions
  • Rental income
  • Assets – and any withdrawn expenses

We then run simulations to show you how your retirement plan will work. We can show you multiple scenarios, including high outgoing costs, like purchasing a home, to the return that these might bring in if you decide to sell. We can also include any other types of return you may be expecting and alter the age you choose for your plan to end to help find the financial future that suits you.

If you have a question about how your property plans will affect your retirement, don’t hesitate to get in touch. Book a complimentary 15-minute call with a member of our team to discuss your retirement goals today.