House rich, cash poor

Recently, some very close friends who have owned their Redwood City home for years found themselves in this very position. They’ve been comfortably retired for years and thought they were set to remain in their home until ill health or advanced age made living there too difficult. But high living expenses — which in their case includes caring for an aging parent — and, presumably, insufficient investments beyond their home itself, combined to the point where they can no longer afford to remain. After living in Redwood City for pretty much their entire lives, they find themselves with no choice but to sell their home and move somewhere cheaper — the Sierra foothills, in their case.

Given what it takes to buy a home around here, it’s understandable that many people have a significant portion of their net worth tied up in their house. Especially if they’ve had that house for a long time, at least on paper, they are probably feeling quite comfortable. Indeed, my own house, which my wife and I bought back in the late 1980s, apparently is now worth five or six times what we paid for it. But we really don’t want to the leave the area, and having kept an eye on home prices it’s clear to me that there is very little around here that would be priced significantly less than what we would get for our current place. From a pure purchase-price standpoint, our best option would probably be to buy a townhouse. But the net proceeds from such a sale and purchase would disappear that much faster, because of Proposition 13 and the resulting significant jump in property taxes.

Some longtime friends of ours, who have lived in various places around the country, just retired from a job in Los Angeles. Although they didn’t own their home down there, for years they’d been saving up to buy a place. As retirement loomed they began the process of deciding what, and where, they could afford to buy. The Los Angeles area proved out of the question, as was the Bay Area (to their regret; for years they’d happily lived in San Carlos). They ended up buying a place a year or so ago just outside of Olympia, Washington, and a couple of weeks ago moved in full time. While they’re happy enough with their new home, with grandchildren in both Southern California and in the Bay Area, and with no shops or restaurants within walking distance of their new home, its location could be better.

It has occurred to me that if my wife and I ever sold our house we could simply rent instead. But high living costs haven’t spared the rental market, and I would be less comfortable having no control over the size and frequency of periodic rent increases, especially given the many years we (knock on wood!) still have before us. My thoughts along these lines are supported by another close friend who has lived in a Belmont apartment for decades. For them, retirement from the teaching profession is looming, but having done the math it appears that, after retirement, not only will they no longer be able to remain in their current apartment, it’s likely they’ll have to leave the Bay Area altogether. Wanting to stay in California, they’re reluctantly considering a move to the Sacramento area.

Retirement is a natural time to take stock of one’s finances, and to consider one’s living situation going forward. My wife and I are fortunate in that — as far as we can tell — we’ll be able to stay in our little Redwood City home for many years to come. Even though our kids and grandkids don’t live in the area — they can’t afford it, for one! — we’ve built up quite a life here that we want to maintain. But seeing friends having to move away from the places and people they love gives me pause, and makes me wonder if I should reexamine my assumptions regarding what is supposed to be our golden years.