Lisa and Chuck C. from Marietta, GA ask: Hello Mitch, my husband and I are officially retired and making some moves. We have decided to downsize (sell our house and move into an apartment), and we have also decided that market volatility is too much for us to handle. We want to sleep at night! What tips can you offer us as we make this transition?
Mitch’s Response:
Thanks for writing and congratulations on your retirement! Let’s start with the downsizing part of your question, which has more layers and considerations than many would expect. The first action item here is to consult with a real estate agent and an appraiser to obtain a clear picture of what your house may sell for, based on the current market. Mortgage rates are climbing and demand in the housing market is showing signs of waning, so it is important to understand how that has affected your local market.
Other considerations involved in the sale are the expenses you will incur, such as the cost of any updates that are needed, staging, capital gains taxes (which can be up to 20%), moving costs, and closing costs for the listing agent, which could be up to 10%. In other words, it is important to do what you can to get a clear picture of what you can expect to walk away with, as you will likely be using that money for your next purchase and/or to add to your retirement nest egg.1
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A final step is to have a clear sense of what your new monthly expenses will be at the apartment or smaller home you intend to buy. If you are moving to a retirement community, for instance, there are likely monthly fees to cover amenities like security, landscaping, fitness rooms, and so on. These expenses would be in addition to the monthly cost of your new home or apartment.
The second part of your question concerns market volatility, which I understand can be unnerving particularly when you’re trying to enjoy retirement. I would need to know more about your specific financial situation to offer any advice here, but I will say that most retirees I work with need at least some level of growth in their investment portfolio. If you’re not working, you are likely getting income from Social Security, perhaps a pension, and also your retirement savings. Without growth in your retirement savings/investments, you will place those accounts on depletion trajectories over time – which may also cause you to lose sleep at night.
Most retirees need some level of growth, and volatility is the price we pay in the short term for attractive levels of growth over the long term. While volatility cannot be avoided, it can be controlled with an asset allocation designed to balance your tolerance for risk with your need for growth. It may be that your current portfolio is allocated in such a way that you are experiencing a higher level of volatility than is needed to meet your goals, which opens the door to making some adjustments.
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