Over the past 60-plus years, the baby boom generation has left its indelible mark on all aspects of the U.S. economy and culture. Now, as boomers enter retirement, a study from Merrill Lynch and Age Wave suggests they have definite views about the role their homes will play in their retirement plans &mdash.
“I think we're going to see more interesting and creative ways to live for a new generation of retirees,” predicted Ken Dychtwald, chief executive of Age Wave. “People will be able to dream up the life they want to live and the resources to live it.”
Thanks to the dual demographic trends of increased longevity and the aging of the boomer generation, households headed by people 65 and older will account for nearly all household growth over the next decade, according to the new report, “Home in Retirement: More Freedom, New Choices.”
Today's retirees have more options when choosing where and how they want to live in retirement, the study said. Their decisions will have widespread implications for how homes are designed, which services are offered, and how communities prepare for an aging population.
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Freed from many of their previous work and family obligations, people in their 50s and 60s cross what the study calls the “freedom threshold.” At age 61, most people say they feel free to choose where they want to live regardless of their prior careers or where their children went to school.
But an empty nest is not necessarily a smaller one. Although many people assume they will downsize when they retire, the study found that of the 4.2 million retirees who moved into a new residence last year, only half bought smaller houses. Nearly one-third bought a larger home in retirement.
Retirees say the top reason to upsize is to have a house large and comfortable enough for visiting family member to stay, particularly during holidays and summer vacations.
“It's an interesting juxtaposition,” said Gao-Wen Shao, director of retirement solutions at Merrill Lynch. “People hit their freedom threshold when they feel free to move to a place that is not dictated by past constraints of work and kids, but they want a bigger house to invite them back.”
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Of course, not everyone relocates in retirement. But the ones who stay put are more likely to spend renovate their existing homes. In fact, households headed by a person 55 or older account for nearly half of all spending on renovations — about $90 billion annually.
LINE ITEM FOR RENOVATION
Note for financial advisers: don't count on your retired clients downsizing. You may want to add a home renovation line item to their retirement balance sheet.
While some revamp their home to make it more age-friendly, most retirees tackled improvements to make their houses more attractive, comfortable and versatile by adding offices; sprucing up kitchens and baths; and installing new technology, such as smart thermostats and apps to control appliances.
Although the study paints a picture of new freedoms during much of retirement, health challenges and care needs can become a larger factor in where people choose to live as they age. During the second phase of retirement, which typically begins when people are in their 80s, health becomes increasingly important.
Among prior generations, most retirees had only two steps: live in their own house as long as they were able, and move to a nursing home when they become too sick or frail.
Today, however, there is an expanding continuum of choices for retirees with health challenges, including assisted living communities; co-housing, where retirees live together and provide support for one another; and the evolving “village” model, through which older adults who live near one another form an organization with central access to services and resources that help them age in place.
ADVISERS' TAKEAWAY
What's the takeaway for financial advisers? For many older people, their biggest asset is their home, and both its equity and emotional value should play a role when discussing their particular retirement plan.
“As financial advisers, you may not have all the answers, but you can provide a great service by being familiar with these topics and helping people to create a plan and to revisit it as needs change,” Mr. Dychtwald said.
(Questions about Social Security? Find the answers in my ebook.)
