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updated 11/6/2006 1:29:50 PM ET 2006-11-06T18:29:50
COMMENTARY

Boomers are all over the place when it comes to their houses.

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Take me and my neighbors. My husband and I are empty nesters who recently took out a sizable mortgage to pay for a large addition to our all-paid-up home. Now we’re in debt again, and we have a big house to take care of.

My neighbors, who are at a similar age and stage, just sold their big home and moved to a smaller one so they could eliminate their mortgage and cut the amount of time they spend on maintaining their home and working to pay for it.

We both had our reasons, and I like to think that we each made a decision that’s right for us. But the divergence of our plans illustrates the findings of a recent study by the National Association of Realtors.

The NAR found that boomers have “diverse plans and timelines, resulting in different housing requirements and significant shifts from patterns established by earlier generations.” In other words, the generation that sang along to ”different strokes for different folks” when they were kids is still at it.

The trade group’s study found that boomers love their real estate. More than 80 percent of the generation are homeowners, and one in four own property beyond their own house, such as land or a vacation home.

But most will defer buying a retirement home until they get closer to retirement. And most boomers are still far from retirement, according to NAR chief economist David Lereah.

As they head into a new stage of life, boomers face a broader array of choices than their parents had. Now there are urban condos, suburban luxury town homes, and cohousing communities — planned developments with shared facilities like laundries and dining halls — in addition to the retirement villages of an earlier generation.

While there may not be many rules, there are some guidelines.  Here are some points to consider as you make your next round of housing choices.

  • The value of your home probably won’t go bust, so you don’t have to sell in a panic.

There will be younger folks around to buy our houses. The U.S. Census Bureau projects a 2020 population of 47 million people between the ages of 65 and 84, compared with 193 million between 20 and 64.

And except for extreme one-industry towns (Houston in the late ’70s, for example), home prices just don’t plummet. Much has been made recently of the 2.5 percent decline in existing home prices in September from a year earlier. But that follows three years of increases that averaged 9.3 percent annually, far above the long-term average of 6.7 percent. It’s just an adjustment.

  • Analyze your debt carefully. Taking out a 6 percent mortgage to buy or build a better home may not be the worst thing in the world, especially if you’ve got decent savings tucked away for retirement. But if you end up having to make mortgage payments once you’re retired, that can become more expensive than you think.

If you use money from your 401(k) or tax-deferred IRA account, you’ll pay taxes on what you withdraw to make your mortgage payments. Furthermore, that money could boost your income to the point where it increases the taxes on your Social Security benefits.

Add all of those taxes together, and it could turn a 6 percent mortgage rate into one that’s 8 percent or even higher. Consider a 15-year mortgage if you’re loan shopping now.

  • If you downsize, invest the money you pull out of your house.  Don’t spend it all on educating your kids and traveling. Using up your home equity when you’re in your 50s can be a risky proposition if you don’t have other savings to live on into your 80s and beyond.
  • Consider all of the costs of big houses and small houses. Big houses come with big tax, utility, upkeep and cleaning bills. Small houses cost less all around, but you could end up spending more on other things, like hotel rooms when the kids come to visit or on that workshop, gym or office that you don’t have room for at home.

You may also end up paying for the lifestyle that goes with a particular house by spending more for club fees at a resort community or theater tickets with that urban apartment, for example.

  • Think seriously about what you really want from your house. Room for a home-based retirement business? Security in the form of a doorman or community gate? Proximity to airports, doctors, kids or ballparks?  Stores you can walk to? Sunny gardening space?

Couples need to have those discussions together.  It’s pretty typical for one spouse to want to stay while the other one wants to go. Financial planners say some folks solve their differences by downsizing their main home to an apartment or townhouse, and getting a second, small home in the desired community.

  • Assume you’ll be making this decision again. It’s nice to prepare your house for your 80s when you’re 50 by adding handrails in the shower and wider doorways, first-floor bedrooms and the like. But it’s not always realistic.

You’re unlikely to hurt your financial future by moving a couple of times in retirement as your situation changes, so don’t ignore what you want right now just to get ready for later.

Copyright 2012 Thomson Reuters. Click for restrictions.

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