Retirement is a major transformation in everyone's life. For some, it brings new experiences, new freedoms, and travel. For others, it's a time of tightening the belt as they adjust to living on a fixed income. Either case can cause retirees to start looking at their budgets and their possessions, including their homes, in a different way.

It's not uncommon for retirees to downsize their homes, either because they simply don't need all the extra space or because they're trying to save money. But this may not always be the best move. Here are four questions to ask yourself to decide if downsizing in retirement is right for you.

Mature couple smiling outside home

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1. How will it affect my monthly expenses?

Downsizing can save you money in retirement, but it isn't guaranteed to do so. If downsizing also means moving to a more expensive area, you could end up paying more per month in rent or your mortgage payment, insurance, and taxes. Other living costs, like dining out, transportation, and groceries, could also be higher.

These factors may not bother you if you have plenty of savings, but when money is tight, you need to weigh the potential savings and costs of downsizing your home. Look at the cost of your new monthly home payment, if applicable, taxes, and estimated home upkeep and closing costs. Compare this to what you're paying now to live in your current home. If the savings aren't significant, you may prefer to stay where you are rather than to go through all the hassle of moving.

2. Will I be comfortable in a smaller space?

Retirees have had decades to accumulate possessions, which can make downsizing difficult for those who aren't willing to part with any of their belongings. Moving all of your things to a smaller home could make the space feel crowded, or else you may have to pay for a storage unit somewhere to store the things you cannot fit in your home. This is also something you need to consider when assessing the financial benefit of downsizing.

But if you're willing to get rid of the things you no longer need or use, you could actually make money by selling your old possessions. This could help offset some of your household expenses for a month or two so you don't need to rely as heavily on your retirement savings.

3. Do I need to downsize?

Whether you're thinking of downsizing because you'd like to save money or because you don't need the extra space, there could be financial advantages to remaining where you are if you have an extra room or an in-law suite you're willing to rent out.

You could accept a permanent tenant or rent your home out while you're away to people traveling to your area. This ensures all the extra space gets used and you get an additional source of revenue to put toward your other living or travel expenses. But not everyone is comfortable allowing others to stay in their homes, so this may not work for everyone.

4. How confident am I in my future financial security?

You may not have to take on a new mortgage if the sale of your old home gives you enough money to cover the cost of the new one, but this isn't the case for everyone. Taking out a mortgage in retirement is riskier than it is for younger adults, especially if you choose an adjustable-rate mortgage where your monthly payments can fluctuate.

If you experience a major health crisis or have another large, unexpected expense, you could end up unable to pay your bills and may even lose the roof over your head. You might be better off staying in your current home if you only have a few years left on the mortgage than taking out a new mortgage that you'll be responsible for for the next 15 to 30 years.

Downsizing, like virtually every other decision you'll make in retirement, is a highly individual call. It may make sense for some retirees and not for others. But it's not a decision you should make lightly. Consider the four questions listed above to decide if downsizing in retirement is your best option.