Most Americans stay where they are in retirement. Of the 420,000 relocators who cross state lines each year, most look to small towns, small cities, milder climates and a lower cost of living.
The younger you are when you start planning retirement, the better. But those of the 77 million Baby Boomers who have not saved enough may not be out of luck.
If relocating to a small town or rural area might be in your plans, here are ways to approach it:
Buy your retirement place as soon as you can. This is often hard to do, because it requires that you start a long-term investment when you’re young and many considerations are unknowable or subject to change.Some make decision easier by starting it as a second home that can become their retirement place.About nine percent of America’s 111 million householders (owners plus renters) — roughly 10 million — own a second home, the rate being highest among those in their 50s, according to Professor Rachel Drew, coauthor of a November, 2007 study by Harvard’s Joint Center for Housing Studies, “Projecting the Underlying Demand for New Housing Units: Inferences from the Past, Assumptions about the Future.”
The advantages of extending your second home into your retirement residence are many.
The second home can be used mostly as a rental unit with income helping to retire its mortgage and the owner getting many tax benefits along with some personal use. As equity builds and appreciation occurs, you have another asset to borrow against. You also can have local friends in place before retirement.
Buying a second home sooner allows you to buy a retirement place cheaper. The second home you bought for $100,000 30 years ago might easily cost $750,000 or more today as a retirement place. The tax-free profit you will get on the sale of your principal residence can now be used for retirement living rather than for the purchase of your next house.
Buy your retirement place with your IRA. A Roth Individual Retirement Account (IRA) is the best retirement savings vehicle available. It allows an individual to contribute $4,000 annually (on which tax is paid), but all principal and all appreciation can be withdrawn tax-free in retirement. Most of us keep our IRAs in stocks, CDs and bonds.
You can also use IRA money to buy a retirement place in advance of your retirement. You cannot live there or use it until you retire. And you can’t use the retirement property to collateralize a loan, even its own.
You can use its rental income before your retirement to pay for maintenance and build your IRA account. Using IRA money to buy rural land is simpler than buying a rural residence, since land generally requires little maintenance or insurance, and taxes are usually low.
If you sell timber or lease the IRA land for crops, minerals or hunting, your net income after taxes and expenses is added to your IRA. Taxes on income earned from the IRA property has to be paid from IRA funds. The biggest benefit of IRA real estate is its appreciated value, which you can sell before retirement and put the net into your account.
The IRS has established rules for buying and managing real estate with IRA money: you must know what they are and follow them. See Title 26—Internal Revenue Code, Section 408A, Roth IRAs. As always you should consult your investment advisor and a good accountant, but don't let that stop you from making your retirement dreams come true.
Want more information about where and how to find retirement properties just call us at 913-837-4665 or email us at info@RuralKC.com
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