Editor's note: This article appears in Kiplinger's special issue Retirement Planning.
The oldest of the baby-boomers may still be a few years away from traditional retirement age, but some are already snapping up future retirement homes. Fueled by the rising value of their current houses and a growing concern that hordes of their aging peers may beat them to the punch, many boomers are cashing in on their home equity now.
That’s what Mike and Kathy Harrigan of Rockville, Md., did. The couple, both in their late fifties, “wanted to get in now while the getting was good,” as Mike says. Although Mike is not yet retired, they began searching for a home that was near the two things they love most: the ocean and their grandson, Timmy. They also wanted a community with amenities, such as a golf course, clubhouse and indoor and outdoor pools to support the active lifestyle they crave.
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While en route to look at another new housing development, they stumbled on Heritage Shores, a luxury retirement community in Bridgeville, Del., about 30 minutes from the ocean. The community won the Senior Housing Counsel’s 2005 award for Best Designed Active Adult Community.
The Harrigans were familiar with the Heritage brand, having visited several of the company’s other communities in nearby Virginia, but they had always considered the upscale developments out of their price range. They were in luck, however. By being one of the first buyers in the new community, they were able to take advantage of pre-construction prices.
Because Mike plans to continue working in his current job at Lockheed Martin for a while longer, they didn’t want to sell their home in Maryland immediately. Instead, they tapped their home-equity line of credit for a down payment and took out a mortgage to finance the rest.
They bought a two-story, three-bedroom, three-bath house on a premium lot next to the golf course for $425,000. It has a master-bedroom suite on the first floor to accommodate one-level retirement living, and plenty of room for visiting family and friends. For now, they plan to enjoy their second home on weekends and throughout the summer. Eventually, they’ll sell their house in Maryland, pay off the new mortgage and move to Heritage Shores full time.
Redefining retirement
The boomers are putting their own spin on retirement, just as they have done with everything else they have touched during the first five decades of their lives. Builders are responding with innovative home and community designs in locations far from the traditional Sunbelt destinations.
In its latest annual survey of baby-boomer preferences, Del Webb, the nation’s leading developer of active-adult communities for people 55 and older, found that about half of the respondents plan to buy a new home for their retirement. The 2005 survey also found that nearly half of boomers ages 40 to 59 would be willing to relocate to be closer to their families and to find a community with facilities that allow them to remain physically fit and socially active.
That’s an enormous change from previous generations, when only about 5% of seniors moved out of state in retirement, as most wanted to remain close to home, family and friends. But with today’s mobile society, grown children often live far away, and some parents choose to relocate in retirement to be near them and their most precious commodity—grandchildren.
A desire for a better climate still plays a role in some retirees’ relocation decision. The most popular choices, according to the Del Webb survey, are Florida, Arizona, North Carolina, California, Texas and Nevada.
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New chapter
Tony and Andi Flanagan fit the Del Webb profile of new retirement-home buyers to a t. Both 59 and recently retired, they spent the past year scouring the Mid Atlantic region for a retirement house. They focused on Delaware, where Andi’s grown daughter and their two grandchildren live, and sought out communities that offered a pool, golf course, and hiking and biking trails. Trading the harsh winters of their home in Avon, Conn., for Delaware’s milder climate was a plus, as was the First State’s friendly tax environment, with no sales tax and lower income and property taxes.
“Most of the communities we looked at just had homes, but not the facilities for the lifestyle we wanted,” says Tony, a retired state employee who managed a local airport in Connecticut. “We wanted to be able to walk to the pool and tennis courts and gym, and we both like to play golf.” They also relished the idea of a social life centered around a clubhouse with a full-time director to organize dances, trips and activities.
Like their new neighbors the Harrigans, the Flanagans found Heritage Shores and snapped up a house on the golf course at pre-construction prices. They paid $450,000 for a two-story house with three bedrooms and three bathrooms. It’s a far cry from the small, ranch-style houses that filled the original retirement villages in Florida and Arizona in the 1960s.
Trading up
The Flanagans also exemplify another trend among the new breed of retirement-home buyers: They paid more for their retirement house than for their previous home and took out a mortgage to help pay for it. But with two pensions and the possibility that one or both of them may work part-time, carrying a mortgage in retirement shouldn’t be a problem.
A recent survey by Countrywide Home Loans, the nation’s largest residential mortgage lender, found that one-fourth of home buyers 50 and older pay more for their retirement house than for their previous or current home.
“Probably the most striking thing we’ve found over the past few years is that many home buyers over 50 are not simply cashing out the equity they’ve built in their family home, nor are they downsizing to a less-expensive house or apartment,” says Jack Haynes, vice-president of Countrywide’s national builder division. “Baby-boomers continue to rewrite the rules of consumer behavior at every stage of life, and homebuilders and mortgage lenders need to be prepared to meet their changing demands.”
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Other trends
One of the latest trends is to build “age-qualified” neighborhoods for homeowners 55 and older within a larger, mixed-age community.
That idea appealed to John Pochodylo and his wife, Vicki. They are also building their early-retirement dreams on their anticipated real estate profits. John, 57, and Vicki, 56, plan to sell their home in Scottsdale, Ariz., one of the nation’s hottest real estate markets, and retire to a new community in less-costly Hickory, N.C. There they can build a new house about the same size as their current place for far less than John figures he’ll get when they sell.
“I am able to transition from this high-priced housing market to something a little less expensive without downsizing,” says John.
While active-adult communities traditionally have been built in suburban locations, urban buyers are commanding a greater share of the market, especially for condos and townhouses. Many buyers are empty nesters who expect a high level of service and spend more on upgrades.
“Boomers are buying lifestyles,” says Chuck Covell, president of Buzzuto Homes, in Greenbelt, Md. “Today’s 50-plus buyers are more affluent and crave a sense of lifestyle when buying a new home. They are not buying solely based on price or location.”
Covell notes that many boomers will continue to work in retirement. In response, builders are including high-tech offices and media centers in new homes to appeal to these buyers.
Although some early birds have gotten a jump on the retirement-housing market, it’s only a trickle compared with the flood of baby-boomers to come. There are now more than 63 million Americans age 55 and older. Over the next seven years, the Census Bureau expects that number to grow to more than 100 million.
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