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.
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?