Conventional wisdom states that when you become and empty nester, you should consider shrinking your nest – in other words, downsizing your home to prepare for retirement. This suggestion has worked for many people in the past, but it has become less appealing in recent years.
Today, the decision of whether to keep your family home or downsize to a more modest dwelling is complicated and requires you to weigh many factors. Before you commit to a strategy, consider the following benefits and drawbacks of downsizing.
Reasons You Might Downsize for Retirement
Moving to a smaller home can help you mentally transition to retirement by providing a clean slate that you can fill with new memories. Additionally, there are many other benefits to downsizing that can help you manage your workload and budget.
Downsizing Provides the Opportunity to Reduce Housing Expenses
The main draw of downsizing your home is reducing expenses. First, you may be able to find a property that costs less than your existing home – allowing you to reduce your monthly mortgage expense or even eliminate a mortgage altogether. However, housing prices have risen considerably in the past few years, which makes it more difficult to secure an affordable property. Second, a smaller home generally uses less electricity or natural gas. These savings usually result in lower monthly utility bills.
A Smaller, Newer Home Requires Less Maintenance
You may have a lot of free time in retirement, but you probably don’t want to spend it cleaning rooms that you don’t use. A smaller home has less space for you to keep clean, which can give you more time to spend on fun and less time spent keeping your space in order.
You also have the opportunity to shop for a newer home when downsizing. If you currently own an older home, transitioning to a more recently built property can vastly reduce the amount of time you dedicate to home improvement projects.
Additionally, a newer home generally has new appliances and finishings like the roof, water heater, and HVAC. Newer products are less likely to break down in the near future, which can save you a significant amount of money on repairs or replacement.
A New Home Can Be More Accessible for Retirees
When searching for a new home, you have the option to seek features that may not have been important to you when purchasing your last property. For example, you may favor a single-story home for retirement to ensure that you are comfortable even if your mobility declines as you age.
Reasons To Think Twice Before Downsizing for Retirement
While moving to a smaller home has the potential to benefit you, there are also important considerations that you should take into account. First, the real estate market is much different today than it was a few years ago, which can make downsizing tricky. Second, losing space can be an important factor to consider.
Moving Can Be Expensive
You may save money on your monthly expenses after downsizing, but the transition from one home to the next can be expensive. Closing costs are the first factor that can increase your moving costs. These fees and expenses typically range from 2 to 5% of the purchase price of a property – or $6,000 to $15,000 on a $300,000 home.
In addition to closing costs, movers can be pricey. Moving costs for a large home locally can be upwards of $3,000 and long-distance moving can cost up to $10,000. This expense is typically paid out-of-pocket, and the steep upfront cost could greatly reduce the benefit you receive from cutting costs elsewhere.
HOA And Condo Fees Can Increase Home Costs
If you are considering a retirement community for your next home, you need to consider the Homeowners Association costs or condominium fees. These communities generally provide extensive amenities like pools, clubhouses, fitness centers, and sometimes even lawn care. However, these amenities typically come with a steep cost including entrance fees and monthly payments.
Downsizing Means Leaving Space Behind
Many retirees choose to pursue new hobbies with their newfound free time, and those pursuits often require space. Consider not only the space you currently use but the uses you could find for extra rooms, garages, or sheds before you choose to downsize.
Make Important Retirement Decisions with Meld Financial
At Meld Financial, we can work with you to weigh the pros and cons of downsizing. This is just one decision that our team of tax, legal, and investment professionals can help you with when crafting a comprehensive retirement plan.
Our retirement planning process centers around our proprietary wealth management program, Financial Fingerprint®. We developed this nimble plan over four decades of helping clients achieve their retirement goals and look forward to seeing it help you as well.
To learn more and get started with Financial Fingerprint®, contact us today.
