Why Downsizing in Retirement Can Save You in a Large Way

As we get older, it gets increasingly difficult to take care of large homes and the amount of stuff we’ve collected over the years. The kids have moved out and are building lives of their own, and suddenly, the extra space isn’t as necessary as it once was. If you’re nearing retirement, now is a great time to consider downsizing. It can be hard to let go of a home where you’ve made years of memories, but downsizing is a practical way to keep your home maintenance manageable and put away money for health and other life expenses.

For some seniors, downsizing isn’t just a difficult decision but an actual economic necessity. With the COVID-19 pandemic harming both health and the economy, and as more Baby Boomers and Generation X-ers near retirement age, downsizing might be the only way they can afford to stay retired.

If you’ve considered selling your home for something smaller, there are a few factors you’ll need to consider. First, think about your personal reasons for downsizing—economic or otherwise. Second, consider what kind of home you’d like to move into. Finally, you’ll need to figure out whether selling your home would financially support the first two factors.

It’s not a fun situation—unless you’re planning to move somewhere exciting or close to your adult children—but downsizing can be a prudent financial decision that can set you up to live out your retirement years in comfort.

Here’s an overview of why and how to downsize.

Why you should consider downsizing now

There are many important reasons to consider downsizing in retirement, including:

• Manage your finances: For many people, finances are the number-one reason to consider moving somewhere smaller. Your home may not be affordable on your retirement benefits, or you might need to free up money to pay for your Medicare and healthcare costs. If you manage the sale wisely and move somewhere that fits within your budget, you can set yourself up for comfort in retirement.
• Give yourself the gift of less upkeep: Even if you’re in perfect health now, aging takes its toll on everyone. Larger homes require significantly more maintenance and upkeep than smaller ones, especially townhomes, condominiums and apartments, where maintenance is taken care of by a management company. Upkeep also factors into your budget—you can often save money on maintenance when you move into a smaller place.
• Easier relocating: Have you always wanted to live in Hawaii? Does the dry climate in Arizona agree more with your lungs? Want to move closer to your children and grandchildren? Downsizing is the perfect opportunity to find your dream home in another area.
• Find a home with aging-in-place amenities: Many homes that were ideal for 35-year-old parents of children aren’t great for 70-year-old people whose knees ache when they use the stairs. Downsizing allows you to find a home with pre-built aging-in-place amenities, so you can continue living independently. Alternatively, if you suffer from serious health issues, you may wish to move to an assisted living facility.
• Eliminate clutter: We collect a lot of clutter over the years. Without a pressing need to get rid of the excess, it’s all too easy to let it pile up. Downsizing is a good opportunity to sort out what you want to keep versus what you can let go, since you’ll have less room to store unnecessary items.
• Make things easier on your children: Adult children often perform the bulk of the caretaking duties when their parents age, and when you eventually pass on, they’ll have to handle your estate and personal belongings. It can be a blessing to them if they have less to deal with when they’re taking care of you or grieving.

How to downsize your home

If you’re interested in downsizing but aren’t sure where to start, here are a few tips:

• Make an appointment with a financial advisor: After you’ve decided why you want to downsize, you’ll need to figure out how to do it. Meeting with your financial advisor is crucial to determining the full picture. A good advisor can help you evaluate your income and assets, point out potential tax liabilities and identify other issues that might affect the downsizing process. In some cases, they may have suggestions regarding whether it makes more sense to sell your home or rent it out.
• Research smaller homes: The next item to tackle is research. Before you can go any further, you’ll need to figure out what it costs to live in the type of home you want, in the location you want. For example, a cottage in Hawaii might cost more than your income can bear, but a condo in the same area could be affordable. Don’t forget to consider upkeep costs, HOA dues and other fees that may not be included in the list price.
• Research your mortgage options: If you sell your home and some assets, you may be able to get a good rate on a short-term mortgage for your new home. Shop around to find the best loan you can find. Ten- to 15-year mortgages are a good choice for retirees because they allow you to gain equity in the home quickly with lower interest rates. If the 10-year option’s monthly payments are too high, 15-year mortgages are often more manageable.
• Find out your home’s value: You probably have an idea of what your home might sell for, but the more realistic your estimate, the better. You can have your home appraised or research similar homes on websites like Zillow. In some cases, it won’t make financial sense to sell your home. For example, if you’ll pay as much to rent a smaller home as you spend on the mortgage in your current home, it might be better to move and rent your home out for extra income.
• Make a realistic budget: Once you have an idea of what your home might sell for and where you’d like to live, you can make a budget. Your financial advisor should have given you an overall picture of what your retirement income will look like over the next few decades. Create a realistic monthly budget, leaving yourself as much wiggle room as possible. Don’t forget that expenses in a different area might look much higher or lower than you’re paying now, so do as much research as you can before committing.
• Don’t forget the taxes and fees: One mistake retirees make when downsizing forgetting the taxes and fees that come with buying and selling a home. Agent commissions, property taxes, closing costs, capital gains and other fees can make a once-desirable home suddenly unaffordable.

Once you have these details ironed out, it will be easier for you to find a smaller home that meets all of your needs. Of course, there’s still plenty to think about. From losing social networks to finding good healthcare providers in your new location, downsizing can be an emotional process. However, if it’s the right decision for your family, health and budget, it can set you up to live comfortably throughout your retirement.

SeniorCare Benefits is devoted to helping seniors find the right healthcare coverage for their needs. We represent a range of Medicare plans and can help you identify the benefits and coverage that are right for you. Call us today at 1-888-230-0269 to get started.

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