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Should You Downsize in Retirement?

11/1/2017

 
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​There are many reasons why it may make sense to downsize, not the least of which are financial. In a smaller home, you may see reduced taxes, insurance, utilities and maintenance costs. You may also be able to capture the equity from your existing home and put a portion of it away in savings.
 
Another potential benefit is that it may reduce the physical toll that comes with maintaining a home. It’s natural that your body may be more vulnerable to injury and illness as you get older. The last thing you want is to suffer a serious injury while cutting the grass, shoveling the driveway or even cleaning a hard-to-reach corner.
It’s a question many retirees face at some point. The kids have long since grown and moved out. The yard and the house require more maintenance than ever. The taxes and utility costs are taking a big bite out of the budget. Is it time to sell the house and move into something smaller?
 
However, downsizing isn’t something to jump into quickly. Take some time and do your research before you list your home for sale. Below are a few questions to ask yourself before you decide to downsize:

How will it impact your budget?
You do have a retirement budget, right? According to a Gallup study, two-thirds of American households don’t use a budget.1 Not using a budget is always a problem, but it’s especially harmful in retirement, when you may be living off a fixed or limited income.
 
A budget helps you see where you’re spending too much money and what adjustments need to be made. It can also be a helpful tool as you decide whether to downsize. Adjust your budget to reflect the estimated costs for your new home, including taxes, insurance, utilities and more.

Get a firm grip on just how much money you will save and how it will impact your ability to live a comfortable retirement. Does downsizing give you enough money to cover medical expenses and possibly enjoy more vacations or time with friends and family? Or does it make only a marginal difference?

What costs are associated with downsizing?
Sometimes in real estate, you have to spend money to sell your home. Do some objective analysis on how much you can reasonably expect to get for your home. You may want to bring in a Realtor or an appraiser to get a third-party opinion.
 
If their estimate doesn’t meet your expected sale price, what steps might you have to take to improve your home’s value? Do you need to remodel certain rooms? Do you need to do a serious cleaning or decluttering effort? Do you need to stage the home?

You may also have to spend money on your real estate agent’s commission, closing costs, unpaid taxes and possibly even any outstanding loans, like your mortgage or a home equity line of credit. Estimate how much you can expect to walk away with after your sale is complete.

How will it impact your personal life?
Your home isn’t just a financial asset. It’s the center of your life and may even be your connection to friends and family. Consider how a move might impact your happiness and your relationships with loved ones.

For instance, will you have room in the new home to baby-sit your grandchildren or have overnight guests? Is the new home in a convenient location to stay socially active? Are you giving up space, such as a craft room or a workbench in the garage, that’s a critical source of happiness for you?
 
If you could become unhappy or detached socially in the new house, it may not be worth the financial gains to go through with the move. Think long and hard about what life will be like after you downsize.
 
Not sure whether downsizing is right for you? Contact us at First Fidelity Group. We can help you analyze your options and decide on the best course of action. Let’s start the conversation today.


1http://www.gallup.com/poll/162872/one-three-americans-prepare-detailed-household-budget.aspx

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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