Downsizing in retirement has long been a popular choice among cash-strapped seniors looking to reduce their living costs. Even retirees without money issues often choose to downsize to avoid the hassle of maintaining larger properties they no longer need.
But new data reveals that downsizing in retirement may no longer be as common. An estimated 52% of baby boomers who own homes say they're never planning to move, according to Chase. If you're wondering whether it pays to downsize to a smaller place once your career comes to an end, here are a few pros and cons you should weigh.
The benefits of downsizing in retirement
For many seniors, the key driver behind the decision to downsize is money -- saving money, that is. It stands to reason that a smaller home will cost less money to heat, cool, and maintain than a larger one. And, in many cases, you'll pay lower property taxes on a smaller home, too.
If you don't manage to pay off your mortgage in time for retirement, downsizing could enable you to take out a smaller home loan, thereby lowering your monthly payments and freeing up more cash for other expenses. And that, in turn, could help you reduce some of the financial stress you might experience when you move over to a fixed income.
In some cases, downsizing might also offer you access to more amenities. For example, if you downsize from a stand-alone house to a condo, you might gain access to a fitness center, pool, and other such on-site perks.
The drawbacks of downsizing in retirement
On the other hand, downsizing isn't a perfect solution to your financial woes. If the main reason you're looking to downsize in retirement is to save money, understand that there's a cost to selling a home. You'll need to grapple with realtor fees, moving costs, and a host of incidentals that could eat into your ultimate savings.
Another thing to consider is that if you have family members (say, adult children) who tend to visit from afar, downsizing might result in a scenario where they can no longer stay comfortably at your home. And that could impact their finances, too, if they're forced to book a hotel room every time they're in town.
Downsizing might also limit you socially, to some degree. If you're used to hosting gatherings, a smaller space may not allow for that. Furthermore, downsizing often means having to part with possessions that are meaningful to you -- unless you're willing to pay for storage, but that's yet another expense that could negate some of the savings you're looking to reap.
Should you downsize in retirement?
Your decision to downsize in retirement should boil down to a number of factors, money being just one of them. If you enjoy having a larger home and can afford the upkeep, or are willing to sacrifice in other areas to make that happen, then there's no need to rush to downsize. On the other hand, if you're struggling to keep up with the cost of home maintenance and utilities, and you don't have a particular need for so much space, then it might pay to unload that larger property and see what savings you eke out.