- If you're retiring, moving might make sense.
- Downsizing your home can free up cash.
- You can also take advantage of other benefits, such as a better location.
Could downsizing be the right move for you?
If you are retiring, you need to think about lifestyle changes you're going to make since you're no longer tied to a job. For many people, downsizing to a smaller -- and typically cheaper -- home is one smart lifestyle change worth making.
Here are four big benefits that could make a move worthwhile.
1. Cash in your equity to bulk up your nest egg
For many people, their home is their most valuable asset. If you've paid off all or most of your mortgage and/or if your home has gone up in value since you bought it, you might have tens of thousands (or even millions) of dollars worth of equity tied up in your house.
Having so much equity is nice -- but you can't easily spend that money to cover your living expenses.
If you sell your house, though, you can cash in that equity. You could use the proceeds to purchase a cheaper home without a loan on it and deposit the leftover money into retirement accounts, where it can produce income for you on an ongoing basis.
2. Lower your housing costs
Even if you've paid off your mortgage, there are other costs of homeownership. You have to pay property taxes and insurance, for example, and also for upkeep, repairs, routine maintenance, and utilities.
If you move to a smaller, cheaper home, all of those costs likely go down -- as does your loan payment.
Reducing your monthly bills is a great thing when you're living off a fixed income -- especially if your Social Security and investment funds aren't going quite as far as you were hoping they would.
3. Pick a better location for retirees
Downsizing can be great for financial reasons, but there are also other benefits. For example, you can pick a location better suited for retirees if your current area doesn't fit the bill.
For most retirees, it's important to have easy access to healthcare as well as some social activities to help fill your day once you're no longer going to work all the time. You may want easy access to an airport (if you're going to travel) and access to a walkable area (if you hope to get rid of a car), either to save money or because driving isn't safe anymore.
You can also look for a location that has more favorable tax rules, especially if your state taxes Social Security benefits (most states don't), or if it will impose an inheritance or estate tax that means you can't leave as much money to your heirs.
4. Reduce maintenance
Finally, if you downsize, you can reduce both the time and money you must spend on maintaining your property. Chances are good you don't want to spend your days in retirement cutting your lawn or cleaning a large space, so you might want to look for a home that won't require as much effort from you.
Carefully consider whether downsizing as a retiree could provide you with more money and a more enjoyable lifestyle.
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