Photo: Downsizing may be more extreme than needed. Photo: Flickr user Taz.
As you approach retirement, it's sensible to think about your expected income and what your expenses are likely to be. If the two aren't lining up well and you're looking at a shortfall, you may find yourself considering downsizing your home for retirement. Think the issue through, though, and you may find that there are better solutions to your income gap.
The concept of downsizing a home for retirement certainly makes sense: You have less income in retirement, and with your children having grown up and flown the coop, there's not much need for a big house. So you find a smaller, less expensive home, perhaps in a different town or state. It might be a condo instead of a house, and it might be in a retirement community, too. There seem to be plenty of advantages: You would probably have lower expenses to maintain the home, as well as lower repair bills, lower utility bills, lower property taxes, lower insurance costs -- and, heck, even less work to do. Sounds great, right?
Don't go smaller than you need. Image: Flickr user Tammy Strobel.
Well, not so fast. You might be overlooking some costs and issues.
The cons of relocating
There are significant costs involved in selling your home and buying a new one, such as closing costs. It will cost money to prepare your home for sale, and your agent will take a cut of the proceeds. Moving costs can be expensive, too, especially if you're moving a significant distance or have others do most of your packing. Spending $3,000 to $6,000 is not unusual. And when you buy your new home, you may need or want to make some modifications to it, and you may end up buying some new furnishings, too. All these costs can add up.
There is an emotional toll to downsizing, too. It can be stressful putting your home of many years on the market -- and stressful for grown children who may be losing the house they grew up in. (Note, too, that if your roomy home is where everyone routinely gathers for holidays, that tradition might go away, too.) By definition, downsizing means moving to a smaller space, so you will need to spend considerable time and energy sorting through belongings and then selling, giving away, or otherwise disposing of lots of items. If you're leaving a neighborhood where you have good friends, you'll need to move away from them and form new friendships in your new location. That's not always easy.
Your new home might present new costs, too, such as homeowners association or condo fees. Local taxes may also be higher.
The bright side
Despite all these considerations, downsizing may still be worth it. Once all the costs are accounted for, you can end up spending less in retirement because you downsized -- though it might take a few years to recoup the costs of having done so. You may be better off emotionally, too, if you have more peace of mind about your financial affairs. You might enjoy your new surroundings more than your old ones, too. And in a condo complex, you may no longer have to worry about mowing the lawn or shoveling your driveway.
So go ahead and give the idea more thought, but be thorough in your planning. List every expense and downside you can think of, as well as every upside. Consider some alternatives, too, such as working a few more years to build a bigger nest egg or even taking boarders in your bigger-than-necessary home. For some elderly folks, having a helpful boarder can even be preferable to living alone.
Just don't assume that downsizing your home for retirement is unquestionably the right thing to do.
