Penelope Tzougros. Penelope Tzougros says there may be better things to spend retirement money on than home maintenance.

When is a house not an asset? In retirement, when staying in it generates costs that weren’t there before. Those expenditures can be so high they can deplete financial resources, crimp lifestyle and deprive homeowners of the sweet treats of a comfortable retirement, like dream trips to faraway places, argues Penelope Tzougros, an RIA who has helped hundreds of clients answer the question: Stay or go?

Financial planners mislead near-retirees by classifying their house as an asset, she contends. In retirement, though, a house requires increased expenditures since aging owners must hire folks for maintenance work they’re no longer able to perform.

The principal of Wealthy Choices, whose clientele is mainly ages 60 to 75, has had plenty of experience helping middle-class retirees make the correct stay-or-move decision. She writes about it in “Your Home Sweet Home: How to Decide Whether You Should Stay or Move in Retirement” (Wealthy Choices-2018).

Tzougros holds that continuing to live in one’s house post-retirement is a threat to required income.

Before entering financial services, the RIA enjoyed a career as an English literature professor at Hellenic College, Northeastern University and C.W. Post. Her resume also includes producing and directing a TV program, “Money Makeover.”

ThinkAdvisor recently interviewed the planner, speaking by phone from her office in Waltham, Massachusetts. Her message is clear: Don’t let your house sabotage your retirement.

Here are highlights of our conversation:

THINKADVISOR: Is there a trend in retirement toward people either staying in their home or selling it?

PENELOPE TZOUGROS: Some statistics say that “everyone” wants to stay in their home, but others say people are more than willing to move because their family is elsewhere, the climate where they live isn’t hospitable and so on. Some statistics say that as many as 90% of people want to stay in their homes. I don’t think the actual number is that high.

What are the biggest mistakes seniors make when considering to stay or move?

The big mistake is that financial planners count the house as an asset. When you’re doing an estate plan, it is; but when you’re looking at how someone is going to live, it’s an expense.

Why?

As a person ages, their ability to maintain the house decreases; [therefore] the expenses increase because they need to pay someone to do all the things they used to be able to do themselves. All those expenses add up; and as your budget gets tighter in retirement, this becomes more of a problem. The older the house, the more maintenance it’s likely to need.

What’s the upshot?

The money you’d use for your lifestyle is now getting absorbed by the house.

What’s the most important issue, then, for FAs to discuss with clients about staying or selling?

Whether their portfolio can keep up. This is where the financial planner can be a tremendous help because as they see those expenses rising, they can change the portfolio sufficiently to give the client the income and growth they need. But chances are that when the [FA] says, “Take out 3% or 4%” [a year], they haven’t factored in the increasing costs of the house.

Do most advisors and clients seriously consider the cost of health care? 

Definitely not. But big health care costs — certainly long-term care, if needed — can sabotage the nice retirement that clients plan. Health issues aren’t properly discussed because clients don’t like to think about [the frailty of old age].

So the FA and client must figure out how long the money is going to last, taking into account expanding expenses should the client stay in their house, as well as health care expenses?

Right. They need to determine: Is there really room to get that person more income so they’re not chewing up their principal quickly? For instance, a portfolio has leeway for costs to go up $5,000, and the [FA] will see that once they [rise] above that, there will be a problem. If you can get the client to think in those terms, they can start looking for a less expensive way to live.

How else can advisors help?

By [applying] a realistic inflation rate. What they use is too low. They say, “Inflation is around 2%.” Excuse me! Did you ever look at the history of inflation rates? It’s not going to stay at 2% for the next 25 years!

Is it a good idea to get a reverse mortgage?

That’s a bad thing. The reverse mortgage is an illusion for many people because it doesn’t [address] why they’re running out of money. It’s a half-measure and not solving the problem. The question is: Should they even be in that house? Why is paying all that money to repair a roof or repaint more important than going on a beautiful trip abroad while you’re still young? It’s better to help the client live in a more economical situation.

What if they’re still paying a mortgage and planning to keep their house when they retire? Is that wrong thinking?

It’s the responsibility of the financial planner to say, “Yes, you can do that” or “No, you can’t because you won’t have enough income you can rely on.” [In the latter case] people need to be flexible: For example, are they comfortable enough having a relative live with them and paying rent? A lot of [homeowners] don’t want anyone else in their space.

You recommend performing a comprehensive cost analysis to determine financial ability to take care of a house in retirement. Is this something the financial advisor and client should collaborate on?

I think so. But both of them are resistant because it involves a lot of detail work. However, if you don’t have a baseline for what the house costs and what your lifestyle costs, you’re putting yourself in jeopardy.

Why, then, would advisors be resistant to doing the analysis? 

This is something that’s part of the planner’s role: helping the client very seriously consider the future. But the analysis is time-consuming, and they don’t make any money on it. However, they might have staff that can walk the clients through it.

Along with others, you see a market pullback coming. Is that one more reason to reconsider staying in one’s house in retirement?

Yes. As financial planners, it’s our job to help the client understand that they shouldn’t eat up too many assets in a correction. It’s been a long bull market, and an [approaching] downturn is part of the natural process. Fifteen-percent corrections have occurred roughly every four years; 20% corrections happen about every seven years. That’s the nature of the beast; it hasn’t changed. Even if there’s a 10% correction, for the retiree who isn’t a multimillionaire, 10% hurts.

So clients should bear all that in mind when deciding to stay or go?

Yes. Could your house sabotage your retirement? Those who love their homes may not ask that question — and that’s partly why I wrote “Your Home Sweet Home.”

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