How to Remodel for Retirement

Home Buying, Home Equity Line Of Credit, Retirement

May 09, 2024

One of the biggest financial decisions you face in retirement is where you will live. I know many of you are determined to stay right where you are. You love the home you’re in, or you don’t think you can afford to downsize without a mortgage given high home prices.


If you indeed are aiming to age in place, now may be a smart time to consider remodeling projects that make your home safe and comfortable for an older you. That’s because according to Harvard’s Joint Center for Housing Studies, spending on remodeling is expected to drop a bit this year. To the extent that means demand for professional remodelers might be a bit less intense, now could be a good time to get some work done.


Of course, part of the reason for slowed spending is that borrowing costs are higher. That makes it so important to have a solid financial plan for remodeling projects.


Aim to pay cash, not borrow.


I don’t care how much equity you have in your home. I am not a fan of taking out a Home Equity Line of Credit (HELOC) to pay for renovations. Most HELOCs have an adjustable rate. Once you draw on your credit line, you must start repaying at least the interest on the tapped amount. And the interest rate is typically variable, meaning it can be adjusted periodically based on what is going on in the general economy. Rates aren’t exactly low right now, and you need to worry about where they might be during the entire stretch you expect to be paying back any money you withdrew.


And then there’s the principal repayment. Typically, you don’t have to start paying that back for 10 years and then may have up to 10 years to pay it down. But where is that money going to come from? If you can’t afford to pay cash now, how do you expect to pay it starting 10 years from now? And be extra careful that you never open a HELOC that has a balloon payment clause. That means your entire outstanding balance could be due the minute your “draw” period (when you can tap the HELOC) expires.


Focus on needs.


Before you scoff that you can’t possibly afford to pay cash for your reno project, I want you to carefully consider remodeling work that is absolutely necessary to ensure your safety and comfort as you age. The focus must be on “must haves”, not nice-to-haves. And there’s no rule that you must do everything all at once. Tackle projects at a pace that you can handle payment out of your regular cash flow. Just prioritize the most important fixes first. For instance, if you don’t currently have a room on the first floor that can work as a bedroom and has easy access to a bathroom with a wide enough door entry (for a walker) and a walk-in shower, that might be something to prioritize.


And if you need to save up for a few months to afford a bigger project, consider tackling some budget-friendlier moves in the meantime. Professionally installed grab bars in all the bathrooms can prevent a slip that can lead to a major injury. Replacing area rugs removes a trip hazard, as can improving the lighting to/from a bathroom.


Tap a small portion of emergency savings.


If you have followed my advice and have at least one year’s worth of living costs set aside in an emergency savings account, you might consider using up to three months of living costs to pay for needed age-in-place projects. To be clear, I don’t want you to let your emergency savings dip below nine months. And if you do tap your savings, I want you to replenish the account ASAP. But spending a small portion of your savings to make your home safe for an older you is an investment in your future well-being.

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