When you spend a good part of your life in the same home and neighborhood, you can easily grow attached to both. The friendships and shared history can run deep, buttressing your happiness and sense of identity. But those bonds could create a tricky situation once retirement begins and you’re no longer earning the same paycheck as during your working years.
A 2024 AARP survey found that 75% of U.S. adults ages 50 and older want to stay in their current homes as they age, and 73% hope to stay in their communities. At the same time, Harvard University’s Joint Center for Housing Studies found that as of 2023, a good 34% of households led by someone aged 65 or older were cost-burdened, spending more than 30% of their income on housing.
Given the potential for expensive home repairs and property taxes that will worsen over time, how can you age in place?
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The finances could work for aging in your home
There’s no getting around crunching some numbers to determine your odds of successfully aging in place. To understand how complex this math can get, look no further than a recent scenario analyzed by financial planners: A 73-year-old widow with a $1.7 million nest egg who wants to remain in her home.
At first, $1.7 million seems like a decent chunk of money to work with for maintaining and staying in a home. But John Moran, CFP and financial planner at Domain Money, says that while it could be enough to retire in place, it depends on the house itself coupled with the lifestyle you want.
“Using the common 4% rule, that allows the retiree to withdraw $68,000 per year,” Moran says.
“While that number will fluctuate with the market, it gives us a good starting point.”
Given that most retirees are eligible for Social Security, it’s fair to assume that in this situation, you have a monthly check to supplement your $68,000 a year in withdrawals. If we assume she receives the average monthly benefit of $2,081, that’s roughly an extra $25,000 a year, or a total annual “paycheck” of $93,000. (If we use the average $1,927.87 widow’s Social Security benefit, that’s a slightly lower annual figure at closer to $23,000, for a total “paycheck” of $91,000.)
Still, Moran cautions that if you live in a high-cost area, you might be financially stretched. For this reason, he says, you need to account for all of your costs and make sure the numbers work. But if staying put is important to you and you’re willing to limit discretionary spending, then aging in place could work.
Don’t forget inflation, RMDs, and future costs
Staying in your home isn’t just about managing your costs in the near term. You also need to plan for inflation, Moran says.
“Home expenses and healthcare often outpace that 2% target that we hear the Fed aiming for in the news,” he says. “If your budget is made up of mostly healthcare and home expenses, which for most retirees it is, we need to adjust our personal expected inflation rate accordingly, especially with older homes.”
Douglas Ornstein, CFA and wealth management coach at TIAA, says you also need to think about the future costs of aging in place from a health and mobility standpoint.
“We’re talking about long-term care planning — the cost of in-home aides, modifications to the home itself, potential memory care needs down the road,” he says. “These costs can be significant and they arrive without much warning.”
Ornstein recommends sitting down with a financial adviser who can incorporate these scenarios into a long-term financial plan.
Another thing to keep in mind is that if you have your savings in a traditional retirement plan, required minimum distributions (RMDs) start at age 73 (but will shift to age 75 for anyone born in 1960 or later). Those forced withdrawals could push you into a higher tax bracket and potentially trigger IRMAA surcharges on your Medicare premiums.
Strategies you can consider
If aging in place is a priority, one thing that may help is to not have to be at the mercy of the market when expenses pop up.
Build a predictable income floor
To that end, Ornstein says it could pay to convert part of your portfolio to a guaranteed income stream.
“Having a predictable income floor — money that shows up regardless of what the market does — creates the financial confidence to let the rest of her portfolio do its job,” he says.
A financial adviser can walk you through different annuity options that provide guaranteed income, but make sure you understand the costs and pitfalls involved. Annuities are notorious for having exorbitant surrender charges should you change your mind.
Be wary of HELOCs
Moran, meanwhile, says that while a home equity line of credit (HELOC) could be a solution if money gets tight, it’s not ideal. A HELOC introduces a new form of debt, and taking on debt later in life can be risky. Moran also says that a HELOC is better used “as an emergency funding mechanism” because rates can be variable and aren’t always competitive.
Research tax relief options
That said, one thing you can look into is tax-relief programs. Some states offer property tax freeze programs or homestead exemptions. Moran says these programs often go unused simply because people are not aware they’re available. Your state or local tax assessor’s website is a good place to start that research.
Downsizing nearby
Another option you could consider is downsizing within the same neighborhood. If your community is vital to your emotional health, downsizing could make it possible to stay close by without the looming repairs and high maintenance costs of staying in the exact same house. The catch? Not all communities have the kind of house mix designed for different life stages. And in some cases, you may not save much money by downsizing.
Assisted living with other neighbors
In some cases, older members of a close-knit neighborhood choose to live in a nearby assisted living community. If that’s the case, meet some neighbors already living there for a meal and get a sense of what it’s like. If it seems like a viable option, you could see if other neighbors and friends would be interested in joining you there.
“Social life and a familiar environment [are] top contributors to cognitive and physical health.” — John Moran
It pays to try to make aging in place work
The reason so many people opt to move and downsize in retirement is that the cost of maintaining an aging home can be overwhelming. But if you’re attached to your community and want to stay put, it pays to build your financial plan around that priority.
“Research on healthy aging consistently points to social life and a familiar environment as top contributors to cognitive and physical health,” Moran says. “That carries real financial value.”
With that in mind, Moran says that a financial planner should be able to help you create an income strategy that allows you to stay in your home. But, he says, “They should be flagging where the tradeoffs sit between staying in place or moving to a more affordable lifestyle.”
While moving does introduce a new set of expenses, it may be worth taking those on as a one-time thing for the long-term savings. And this solution may give you the best of both worlds.
