Downsizing is a common topic that comes up with homeowners as they approach their retirement years. But before moving to a smaller house or condo, pre-retirees need to think about both the lifestyle and financial implications of such a major move.
Many would prefer to stay in the family home if they can. However, downsizing can be a very appealing option to free up funds for retirement and cut living expenses, for the average homeowner who has been paying a mortgage for years and building up substantial equity.
The first step is to have a clear idea of what it costs you to run your life now, you should also research the potential costs of the new home you are considering. Keep in mind "How do you want to spend your time?" This gives you a sense of where you want to live in retirement and whether you are ready to downsize.
When it comes to the financial considerations of downsizing, consider whether the move is financially beneficial. “The initial thought is ‘I’m going to reduce my expenses,’ but this may not always be the case.”
The plan to end up with a large chunk of money to invest doesn’t always go as planned. Related expenses can take a serious bite out of any profit from the sale of your house. So, approach this option with caution, take into account the moving cost and other expenses like closing fees and real estate commissions, condo fees and land transfer taxes.
However, if you plan to travel a lot, spending a few months in the warm weather of Florida or Mexico, and maybe a couple of months touring Europe each year. Then it makes a good sense so have a condo, where you can just lock the door and leave, is so much easier than a house with a yard and all of that.
Also, the financial benefits of downsizing can be substantial, when you sell your home and buy a smaller house or a condo, the idea is to be able to pull the equity out and have that as ready cash available for your retirement lifestyle and to also reduce the day-to-day costs, so what you’ll be needing to draw from your retirement income is less.
Take the emotion out of the downsizing decision
The main reasons most empty nesters are reluctant to downsize tend to be emotional ones. They feel comfortable there, it's where their children grew up, it's their home, but the decision is better made based on financial and health reasons.
There is the age-appropriateness of the property itself. Older adults are better off moving to a single-story home while they are perfectly healthy before stairs begin to pose a risk.
Determine whether to stay with a few changes
Aging in place can be a viable option, even if modifications need to be made. Such improvements can be cheaper than moving into a new home. For example, the average cost of building a wheelchair ramp is approximately $2,500. It's more about rightsizing rather than downsizing, people often like where they live and want to find ways to stay there.