Downsizing After Retirement

August 2, 2024

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Downsizing is a common practice around the time of retirement. It may be to simplify your lifestyle and lower expenses, or it could be to avoid going up and down stairs. Some consider downsizing the greatest post-retirement decision they have made, while others find themselves disappointed. As you consider downsizing, be sure to do your research and think through why you would personally benefit before making the move.

Common Reasons to Downsize

There are several reasons to downsize as you advance in age. If one or more of these reasons are relevant to you, then it may be worth it to further consider what the downsizing process would involve.

• Costs – Smaller homes usually have lower utility costs, lower mortgage payments, and lower property tax bills than larger homes in the same area, depending on the timing of the home purchase.
• Saving for retirement – If you do not feel like you have enough money saved for retirement, then downsizing could potentially offer a way to grow your retirement savings.
• Reduced upkeep – Eliminate the need to clean and organize multiple floors by downsizing to a one-story home.
• Simplify your lifestyle – Adopting a minimalist approach can help you cut back on clutter and devote energy to things that matter to you.
• Health – Eliminating stairs may help reduce the risk of falling. Additionally, older adults have greater medical expenses on average compared to other adults – downsizing may help retirees save on other costs they previously incurred while living in a larger home.
• Seller’s market – You may be able to sell your current home at a premium if the market favors sellers. However, keep in mind that if you purchase another home at the same time, you will be buying under the same market conditions.

Things to Consider Before Downsizing

Moving is always a big decision, even if it involves moving from one comparable home to another. Is now the best time to move or does it make sense to wait a little longer? Downsizing adds in additional decisions to think through, as it typically involves lifestyle changes as well. As you consider downsizing, discuss the questions below with your partner and your family.

• Are you emotionally attached to your home?
• Have your needs changed since purchasing your current home? Do you still want the space and amenities the home and neighborhood provide?
• Where do you plan to move? Are you able to find the home and neighborhood you are looking for in the current housing market? If you plan to move to a new area, be sure to visit at least a few times before making a decision.
• How would downsizing impact your financial and lifestyle goals? Would it give you greater financial freedom and more time to do the things you want to do?
• Would you be moving closer or farther away from friends, family, health providers, and others?
• Will you be able to adjust to having less space? Additionally, will you still have room to enjoy outdoor activities? Individuals often underestimate how much they value space before they downsize.

Do Your Research

As you consider the reasons you have for downsizing, you should also research the specifics of what the move would entail. Downsizing is most beneficial when it meets both your financial and lifestyle goals. Below are additional questions to help you figure out if moving makes sense from a financial standpoint.

• What is your home currently worth? Start by researching comparable homes that have recently sold in your area and determine if you need to make any repairs or upgrades.
• How much will it cost to sell your house and purchase another home? Factor in expenses such as home repairs, closing costs, real estate agent commission, etc. Will you make enough from the sale of your home to be able to comfortably cover the costs associated with the new home?
• If you plan to move out of state, how do taxes and cost of living differ from your current location?
• How will utilities, maintenance, repairs, and insurance costs differ between your current home and the one you are looking to purchase? Can you expect to save money in these areas?

Pros of Downsizing

There are several reasons why downsizing is a popular choice for retirees. Oftentimes, it comes down to being able to simplify life after retirement. Review the advantages below and determine if the selling points outweigh the disadvantages.

• Lower your monthly mortgage payment – Ideally, a smaller home should come with a lower monthly payment, but this is not a guarantee.
• Reduce your expenses – If the smaller home is worth less, then property taxes, insurance, and maintenance costs should be more affordable, depending on the area.
• Less upkeep – Unless you move to a home set on a bigger plot of land, you should have less to maintain after downsizing. This is especially true for those who move to neighborhoods with an HOA.

Cons of Downsizing

Of course, every decision comes with both its advantages and disadvantages. Taking time to think through potential drawbacks can save you from making a rash decision. Discuss the potential cons of downsizing listed below before you make the decision to move or stay in your current home.

• Moving costs – Are you able to afford the real estate agent commission, closing costs, and any repairs that are needed on the home before moving?
• Figuring out what to do with your possessions – A smaller home usually has less storage space. If there are items you prefer to keep rather than selling or giving away, will you need to pay for a storage unit?
• Less space – Those who have downsized often mention that it takes time to adjust to having less space, usually because they underestimated how much space they actually used in their previous home.

Downsizing is not for everyone. If you are someone who takes advantage of most of the space you have at your current home, then moving could potentially be a tough adjustment. Take the time to talk through the specifics with your partner and family before you decide to move.