Saturday, January 06, 2007

Where and how will I live when I retire?

I need to get back to thinking about retirement planning. A key component of any reasonable retirement planning process is setting up an estimated monthly budget. A big part of the monthly budget for most people is their housing costs. Housing costs depend on location as well as the quantity (size) of housing and the quality (comfort) of that housing. So, these are the three unknowns about housing that I need to grapple with:

  1. Where will I live in retirement?
  2. How much space will I need (want) to live?
  3. How fancy a place will I need (want)?

There are three possible starting points for thinking about your overall housing needs way off in the future:

  1. Live roughly as you do today.
  2. Downsize and live more frugally.
  3. Splurge and pursue the kinds of creature comforts that you denied yourself during your more frugal "working years."

I've been living in studio apartments for over 20 years now, so downsizing is not exactly an option for me, but I don't feel any urgent need for much fancier housing than I have been used to.

There are a variety of kinds of locations:

  1. Urban
  2. Suburban
  3. Country
  4. Resort
  5. Retirement community
  6. Mobile

If I had my choice, I'd prefer to have a number of homes and bounce between them as my mood suggested. Even so, a primary location is still warranted. For me, that would be urban.

I would rather live in Manhattan, near Washington, D.C., or near Disneyworld.

If I could afford it, I'd rather live in semi-decent hotels, staying as long as I liked and moving on whenever I liked. Hmmm... maybe that actually is possible. My recent trip to New York City cost me $116 per night, which works out to about $3,500 per month. That's not completely out of the question, but I suspect that my final housing budget will have to come in closer to $1,500 per month. That is moderately more than my current rent of $925 plus maybe $75 for utilities.

My ultimate dream location would be to own a nationwide or even international chain of semi-luxury hotels (ala Hyatt or Marriott) and be able to just check into any of "my" hotels at my own whim. Somehow, I don't see this as a practical option to consider, but it would be my preference.

I suspect that my final choice for location will be somewhat dependent on my budget, but I also suspect that I can always trade off location for size and quality. My personal preference would be to trade up to my most preferred location and give up size and possibly quality.

It is also quite possible that my retirement location might change every few years.

Owning is a possibility, but given my interest in moving around and lack of a "nesting" instinct, renting seems more appropriate for me, but I might consider owning if the economics makes sense.

I simply do not have a clear conception of my ultimate preferred (low-budget) location at this time. It is something I need to give more thought to, maybe as I get a better handle on what my housing budget can be.

My tentative housing location would be Manhattan or Washington, D.C. Three years ago I was paying $1,275 for a studio in Manhattan and $850 for a studio in Washington, D.C. I checked craigslist and it looks like a decent studio can be had for $1,800 in Manhattan, and it looks like about $1,500 for a decent studio in DC. I'm sure I can do better than those prices today, but in the interest of being conservative in my budgeting and to allow room for going a bit more upscale, I'll stick with those numbers.

I would like to be able to have a place in both Manhattan and DC. That would run $3,300, almost as much as staying in hotels every night.

If my overall retirement budget fits only $1,800, Manhattan would be my choice. If I could have a $3,500 budget, I would go the hotel route.

There is still plenty to think about here, but at least I have my starting point: budget $1,800 for a studio in Manhattan.

I also need to determine an estimated annual housing inflation rate. For now, I'll assume housing and inflation at about 2.5% a year.

I'll budget $100 per month for utilities, although my last apartment in Manhattan included all utilities in the rent.

-- Jack Krupansky

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