The Pros and Cons of Moving Closer to Your Children

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Do you have any insights about moving in retirement to be close to children and grandchildren? I realize this is a very personal decision, but I assume many retirees and families grapple with this.

A great topic. Some retirees, of course, can’t wait to relocate near family; others think the occasional visit is more than adequate. (Or, as George Burns, the late comedian and actor, put it: “Happiness is having a large, loving, caring, close-knit family in another city.”)

If you’re wrestling with this decision, here are some things we’ve learned from talking with retirees:

• Options other than moving: Many older adults are hesitant to pack up and move for two very good reasons: They like where they live, and there’s no guarantee that adult children will stay put. Fine. There are easier (and, often, cheaper) ways to spend time with family.

Perhaps, instead of moving, you make extended visits—say, three or four times a year for two weeks at a stretch. Or perhaps you rent a place near your adult children for a couple of months each summer (or winter, depending on the location). Or perhaps you spring for a multigenerational vacation each year.

In short: You can get pretty close to moving without moving.

• Boundaries and budgets: If you’re leaning toward making a move, the single most important step is to talk with adult children about expectations and boundaries. For instance: How often will we see each other? Will all parties have sufficient time and space for themselves? Is there a risk of too much “closeness”?

Almost as important: You need to run the numbers. In other words, can you really afford to move? And what would be the long-term effects on your nest egg? Speaking of which…

• Renting instead of buying: If you’re age 50 or older, chances are good you think about housing in terms of owning and not renting. But renting can have several advantages, particularly if you’re on the fence about moving near children.

Among them: Maintenance costs are likely to be lower (or nonexistent); you might be able to beef up your savings by investing the proceeds from the sale of your house, rather than tying up the funds in a new home; and if you’re left in the lurch—either because your adult children move away, or because you simply realize you made the wrong decision in moving—it can be easier to walk away from a rental than going through yet another home sale.

Finally, recognize that inertia might be the only thing standing between you and moving. And inertia can ruin a retirement. As one retiree who decided to move close to her family told us:

“When we looked hard at our situation, a move increasingly seemed worth the risk. No, there was no guarantee that our children and grandchildren would stay put. But they seemed happy where they lived. Yes, selling our home and downsizing would be painful. But missing the chance to be part of weddings, school graduations, birthdays, births and anniversaries—the generational threads that bind us—would be more painful still.

“None of us know what the future has in store. We can only depend on the knowledge that, having weathered life’s storms, we will adapt.”

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In 2003 I sold all my mutual funds and purchased only individual dividend-paying stocks. Collectively, they have performed quite well. All dividends have been reinvested. I have substantial gains, and my accountant advises that I start harvesting these gains. I am 65 years old and have no need to start collecting Social Security for several more years.

I have met with several financial planners, and the consensus has been to close out my positions, pay the capital gains and invest the proceeds in products that I consider to be high commission in addition to an annual management fee. My original plan was to live off the dividends, but as I have gotten older I have become a bit more risk-averse. I subscribe to the “4% rule,” which my dividends satisfy, but the potential risks concern me. What are my options?

You are right to be concerned, for three reasons.

First, you mention that you are invested, or seem to be invested, solely in stocks. Remember: Just since 2000, the S&P 500 has twice fallen by about 50%. In short, you don’t seem to have any “defense” (read: bonds) in your holdings.

Second, even the best companies can cut or eliminate dividends. Banks, for instance, were doing “quite well” right up until 2008 and 2009, when some of the biggest names in the business slashed their quarterly payouts.

Third, you mention that several financial planners are advising you to invest in high-commission products. I certainly don’t mean to question the financial acumen of these individuals, but as William J. Bernstein, a neurologist, investment adviser and author, is fond of saying: The reason that “guru” is such a popular word is because “charlatan” is so hard to spell.

Don’t misunderstand (and I’m trying to head off some angry mail from dividend lovers): Dividends can be a wonderful source of income in retirement. But retired investors, in particular—who don’t have a steady paycheck from a job—need a Plan B, says

Charlie Farrell,

chief executive officer of Northstar Investment Advisors in Denver.

“The key is to really think through how you would react to a big stock-market decline and how you will ‘bridge’ that decline,” he says.

So…what to do? Obviously, there are many ways to invest your savings. (Personally, I favor index funds.) If you’re wedded to dividend stocks, that’s fine—if (and this is a big “if”) you are able and willing to do the continual and difficult work of researching what stocks to include in your portfolio. How many? At least 30 to 40 individual companies, Mr. Farrell suggests, spread across multiple sectors: utilities, telecom, energy, financials, etc.

Most important, you need bonds—particularly, higher-quality, short- to intermediate-term bonds (for instance, Treasury bonds). These should make up at least 30% of your holdings, Mr. Farrell says. Again, when markets crash, and if you are invested in equities, you must—must—be prepared for declines of 40% to 50%.

“If you have a base of high-quality bonds to use during a crisis, it allows you to get time on your side,” Mr. Farrell says. “Which is what you need and what allows you to invest in stocks.”

Mr. Ruffenach is a former reporter and editor for The Wall Street Journal. His column examines financial issues for those thinking about, planning and living their retirement. We welcome your questions and comments at askencore@wsj.com.

Appeared in the Apr. 10, 2017, print edition as ‘The Ups and Downs of Moving Near Children.’