Most people age in place in the homes they raised their families in – but during the COVID-19 pandemic more people have been reviewing their financial plans and considering laying out cash for buying their future retirement home.

In fact, one of biggest expenditures you may make is buying that retirement home you and your spouse have long dreamed about. Yet, financial planners can tell you stories of some costly mistakes clients have made when they didn’t do their homework.

Do your homework and avoid a costly mistake

Want to know how to prepare for that big step and avoid buyer’s remorse?  Here are some tips to help you prepare.

Do your research.

Visit your new city and your new neighborhood. Vacation there or find a rental. “Rather than plunking down money and going to Florida, we tell people to test it out for a month or three months to see the area,” advises Jeff Corliss, Managing Director and Partner at RDM Financial Group in Westport, Conn.  “See what it’s like,’ he urges. “Our retirement is a lot different from our grandparents. They’d retire at 60 or 65 and were more sedentary. Our lifestyle is more active.”

When buying a retirement home, consider: How close are supermarkets and other shopping? Are you in walking distance of cafes and restaurants? Is your new home near doctors and other medical professionals? If you need to travel to see family and friends, are you near an airport or train station? If you are active, is it a walkable community? Are there hiking and biking trails nearby?

Put your contingency funds outside of retirement accounts

Prepare for contingencies

Often people don’t factor in Homeowner Association dues or other contingencies, Corliss says. You might need to replace your HVAC system or repair the roof. One key action item: put your contingency funds outside of retirement accounts. If you withdraw from an IRA or 401(k) there will be tax consequences. “You don’t want to necessarily put down a lot and be cash poor,” he points out. “Get a realistic expectation of what you will spend post retirement.”

Get a mortgage before you retire…

“It’s a great idea of plan ahead and buy a place while you’re still working,” Corliss says. If the mortgage lender is looking only at your Social Security and pension, the underwriting becomes more challenging.

…and don’t rule out a second mortgage

It may make sense  –  especially if you buy a vacation home that will be your future retirement home, says Brian Kennedy, president of KCA Wealth Management in Camp Hill, Pa. “I’ve helped many clients do that. You’d be surprised how low interest rates are. Instead of coming up with 20 percent down, take the equity out of your own home and take a 30-year mortgage. You will have a mortgage again, but in 3 to 5 years you will be selling the home.”

One client’s two new monthly mortgages were just $500 more than what they paid for their main home. Also, since it was a vacation home, they were able to rent it for three months of the year.

Consider accessibility

Check the house to see if it has first floor showers, kitchens and laundry rooms, says Kennedy. “Is it ready for accessibility? Can a ramp be put in? One out of two people will need long term care,” Kennedy points out.

Don’t overlook taxes

You may move to a state with higher taxes or taxes you may not have in your current state. Also, some states may have no income tax but higher sales and property taxes. There are thirteen states that tax Social Security benefits. Veterans face a patchwork quilt of policies across the states:  seven states fully tax military retirement pay, 21 states don’t tax retirement pay and 13 tax a portion. Seventeen states have estate or inheritance taxes, according to the AARP.

While you’re thinking about the best option for a retirement home, go with your brain, not your gut – and do your homework!

Rodney A. Brooks writes about retirement and personal finance issues. His column currently runs in U.S. News & World Report. He has written columns on retirement for The Washington Post and USA TODAY. He has also written for National Geographic, Next Avenue and Black Enterprise magazine. He retired as Deputy Managing Editor/Personal Finance and retirement columnist for USA TODAY in 2015. 

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