Retirement is a time of major change in your life. For many retirees, one of those changes involves leaving their home.

Downsizing to a smaller house is popular among retirees for lots of reasons. You may not need such a large home after your kids have gone, taking care of a big property may be a major hassle, and you may want a home without stairs for health issues.

However, if downsizing isn't a matter of necessity for you, you'll have a choice to make: Stay put, or pack up and move. There are pros and cons to both options that you should consider. 

Large home with a sold sign in front of it

Image source: Getty Images.

The advantages of downsizing your home as a retiree

Some of the big advantages to downsizing include the following:

  • You could reduce or eliminate your mortgage: More than 4 in 10 older Americans responding to a recent survey conducted by American Financing indicated they still owed money on their mortgages in retirement, and 17% said they didn't think they'd ever pay off their mortgages. If you still owe on your home but could downsize to a cheaper house that's paid in full, or has a much smaller mortgage, you could significantly lower your housing costs. Spending less on housing means you can reduce the amount you withdraw from investments -- or have more wiggle room in your budget. 
  • You could reduce other housing costs: If you downsize to a smaller and cheaper home, not only can you cut your mortgage costs, but other expenses are likely to be reduced as well. Your property taxes should be lower on a cheaper house, for example, and your utilities should be less if your new home is smaller. The average annual increase on property taxes is typically much greater than the average annual increase in Social Security benefits, so when you're living on a fixed income, keeping property taxes as low as possible is essential. 
  • You could pick a more strategic location: When you sell your existing home, you could pick a place for your new one that makes your cost of living cheaper in other ways besides just reducing housing costs. For example, you could move to a state that doesn't tax Social Security if your benefits are currently taxed. Or, you could move somewhere more walkable so you could get rid of at least one of the cars in your household

Reducing monthly costs by downsizing could mean the difference between your nest egg seeing you through to the end of your retirement, or running out of money early -- so it's something to seriously consider if you're afraid your cash won't last. 

The disadvantages of downsizing your home as a retiree

Although there are clear advantages to ditching your big house for a smaller one, there are also some big downsides as well. For example:

  • You may not actually save as much money as you think: According to the National Association of Realtors, the average homeowner between the ages of 65 and 74 who decides to downsize will sell a home for $270,000 and buy a new house for $250,000. That's because demand for smaller homes is high, and retirees are competing with first-time homebuyers looking for starter homes. If you can only reduce your housing costs by around $20,000, it may not be worth the effort. 
  • Moving can be expensive: When you sell your home, you typically must pay commission to your real estate agent and the buyer's agent. You'll have closing costs to pay, and moving expenses. This can eat up any savings that come from downsizing. 
  • You could lose your sense of community: Maintaining social connections is essential to staying healthy in retirement. If you've been living in one place for a long time, you likely have friends in your neighborhood, know your local restaurants, and have places in the community where people know you. Moving and giving up your established social connections could make it much harder to enjoy your post-work life.  
  • You may be sorry your new house is smaller: According to recent census data, one-third of young people between the ages of 18 and 34 lived with their parents in 2015, and more young people lived with parents in 2016 than with spouses. If you downsize, and your kids decide to come back home, you -- and they -- may be unhappy with the fact that you're stuck in closer quarters. 

Think through these issues carefully -- and do the math -- before you list your home, so you don't end up doing something you regret. 

What decision is right for you?

Ultimately, every retiree needs to decide what's best for them. Ideally, you'll have saved enough for a secure retirement so you can easily afford to stay in your home if you prefer -- or move if that's what you desire. Start saving as soon as you can, and factor in housing costs when deciding how big your nest egg needs to be, so financial necessity won't dictate whether you have to sell your home or stay put.