When Harvey and Cora Alter decided to move away from Washington, D.C. for their retirement, friends were surprised to hear where they were going.
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The Alters weren't even crossing a state line. They would move just 30 miles (50 km) north of Rockville, Maryland, where they had raised two daughters, to Frederick -- a town of about 65,000 on the outskirts of the Washington-Baltimore metro area near the Catoctin Mountains.
"People were surprised that we weren't moving to North Carolina, where one of our daughters lived," Harvey Alter recalls. "We wanted to be near Washington where all our friends lived, and we saw no point moving near one daughter and bothering her -- and not the other in Ohio."
Relocation in retirement often brings cross-country or big north-south moves to mind, but very few seniors actually go very far. In 2010, just 1.6% of retirees between age 55 and 65 moved across state lines, according to an analysis of U.S. Census Bureau data by Richard Johnson, director of retirement policy research at The Urban Institute.
And even among retirees who do move across state lines, migration patterns have shifted in recent years, Johnson says. In 1990, more than one in four retirees between age 55 to 65 who did relocate across a state line moved to Florida. Seven of the top 10 cities for migrating retirees were in the sunshine state. Florida remains the most popular destination, but it only attracted one in seven of retirees between 2005 and 2010.
"Americans are moving to cities all over the country today when they retire," he says. The most popular destinations now include Atlanta, Las Vegas, Dallas and Phoenix, but New York, Washington, D.C., and Chicago also attract many retirees.
The Alters made the move from Rockville to Frederick 14 years ago, when they were in their early 60s. They traded in a single-family home for a townhouse in Worman's Mill, a planned residential development in Frederick adjacent to the scenic Monacacy River. It's not an age-restricted retirement community: "We have school buses coming in, and friends in the community almost the same ages as our kids. I don't want only to be around old grouches like me," Alter says.
Harvey, 79, and Cora, 75, say they are still happily ensconced in Frederick, although they recently sold the townhouse and moved into a condo to eliminate staircases and outdoor gardening chores.
The increasing popularity of the short-distance move may be a result of the many advantages the strategy offers. Retirees who stay an hour or two from where they worked and raised their children can cut their costs while staying near their friends, cultural events, major airports and medical facilities. Moving outside the metro area means they don't have to compete on housing prices with people who need to be closer to the city for their jobs.
Depending on local real estate values, it's a move that can allow seniors to extract substantial equity from the real estate portion of their assets. Many bought their homes decades ago at prices far below even today's depressed market -- and they are the most likely age group to be mortgage-free: 65% of homeowners over age 65 were mortgage-free in 2009, according to the Census Bureau.
The Alters sold their Rockville home for $245,000 and bought the townhouse for $188,000 -- a gain of about $57,000 -- before retiring a small mortgage. "From the start, the downsize from Rockville to Frederick was to increase disposable income and create a more comfortable retirement," Harvey says.
BIG SAVINGS POSSIBLE ON HOME SWITCH
The results can be eye-popping when the downshifting involves a move away from a pricey real estate market, according to a review of median home prices from Sperling's BestPlaces (http://bestplaces.net/), a research firm that analyzes U.S. communities.
For example, a retiree could sell a home in Montclair, New Jersey, near New York City, where the median home price is $560,800 and move 90 miles (145 km) to Allentown, Pennsylvania (median home price: $135,400) -- pocketing about $425,000 in extracted equity, assuming a mortgage-free transaction and excluding closing costs. Likewise, a 40-mile (65 km) move from Highland Park, Illinois (median home price: $542,000) to nearby Woodstock ($205,800) would generate around $336,000 in extracted equity.
Property tax savings could sweeten the deal in some situations. Sperling points out that the Montclair house would face property taxes of around $11,300 a year, while the Allentown home would carry property taxes of only $2,580 -- an additional savings of almost $9,000 a year.
Perhaps best of all, federal tax law lets you keep as much as $250,000 of the gain tax-free if you're single, and up to $500,000 for couples. That money can be used any way you like; the rule applies as long as you've lived in the home you're selling for at least two of the last five years.
The math can work even in the current difficult economy and real estate market, says Bert Sperling, the company's president. "Seniors may have to accept a lower price, but they'll be buying at lower prices, too. And, since many of them have a great deal of equity in their properties, they have few problems with credit requirements on the new purchase."
What's more, an improving economy will unleash a great deal of pent-up demand over the next few years from younger people who have been forced to hold off on home purchases, Sperling suggests.
The cost of living in exurbia is far lower, too. BestPlaces data on prices for housing, food, transportation, utilities and health care show that it's 19% less expensive to live in Frederick than Rockville. Median home prices are 33% lower, and property taxes are 10% lower.
During their working years, Harvey Alter worked as a chemist focusing on hazardous waste issues; Cora, who worked part time, was trained as a classical professional singer.
The two still visit Washington, D.C., a couple of times each month to meet friends for dinner, and Harvey heads into the city regularly to meet friends for lunch at the elite Cosmos Club, where he has been a member for 41 years. As an extra bonus, that daughter in Ohio wound up moving back to the Washington area.
For healthcare, they have their choice of doctors and excellent medical facilities in Frederick and Baltimore -- although that's the extent of their shift in loyalties away from Washington. "When we moved, one of our daughters predicted that we'd wind up taking the Baltimore newspaper, and switch allegiance from the Redskins to the Ravens," he says.
"None of that happened." They may face a longer drive time, but they're still Washingtonians in their hearts, if not their budgets.
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