Download Our Full Downsizing Guide
Gain access to our free Downsizing Guide with answers to your most important questions.
Gain access to our free Downsizing Guide with answers to your most important questions.
Welcome friends
There's a host of reasons for downsizing to a smaller home. You might want to pocket the savings and build upon your nest egg. Maybe you're ready for a new adventure and eager to move to a high-rise condo in the city. Or finally—the kids have flown the coop, and you don't need the extra bedrooms and bathrooms anymore.
Whatever your motive is for downsizing, an honest evaluation of your expectations is essential to make an informed decision. That’s why I think it is wise to ask yourself these questions before you even start looking for a smaller home.
Downsizing is not just about square footage—it is about freedom,
comfort, and peace of mind.
Sadly, for some people, the home they live in is a constant reminder of something they’ve lost. Empty nesters, widows or widowers, divorcees, even people who’ve lost a job may find that it’s time to scale down and move on.
Your home is literally the first thing you see when you wake up in the morning. If it causes more heartache than pleasure, take a moment to consider what it would be like to live someplace new. If that thought lifts a weight from your shoulders, then it’s likely time for you to downsize.
It needs to be asked whether you are retired, heading towards retirement, or just planning in advance. Retirement usually means living on a fixed income, unexpected home repairs, escalating taxes or other unplanned expenses. All of these are sincere hardships in retirement. I would advise talking to your financial planner about how your real estate fits into your retirement planning. We often assume that downsizing will result in fewer expenses for housing. However, that is not always the case.
When you talk to a tax attorney, accountant or financial planner, are you consistently getting advice that it’s time to address your home? While everyone’s tax situation is unique, if you are consulting with professionals and learning about the advantages of selling your home and downsizing, then that’s a good sign that it’s time to consider that move. For most people, their home is the largest investment they’ll ever make.
Living in a smaller space can reduce the mortgage payment, and cost less for utilities, property taxes and maintenance—but downsizing does come with substantial upfront costs.
When it comes to how much of your monthly budget should be spent on housing expenses, 30% is the magic number. No, we didn’t just pull that percentage out of a hat—the U.S. government has been using 30% as the standard for housing affordability since the United States National Housing Act of 1937. Since that time, any household paying above 30% of their income on housing is considered financially burdened.
While you’re still working, your housing costs may fit comfortably within your budget. But the simple act of retiring can unexpectedly push some retirees into the “burdened” bracket. Housing cost burdens increase with age as expenses. continue to rise and income is reduced in retirement.
Those who are just getting by because they haven’t figured out how to live on a fixed income, that’s a sign to downsize into a smaller place with a more reasonable monthly mortgage payment. Seniors who want to avoid getting a part-time job say at a fast-food restaurant just to make ends meet the need to calculate how much house they can afford in retirement.
The Merrill Lynch survey found that a whopping 64% of downsizing retirees are making the transition to a smaller home to cut down on their housing expenses.
Are you confident that you’ve saved enough to fund the retirement lifestyle you desire? A 2018 Retirement Confidence Survey by the Employee Benefit Research Institute found that only 1 in 3 retirees are “very confident” that they have enough money to live comfortably throughout their retirement. If you’re not, you may be counting on your current home equity for retirement income.
In fact, covering everyday expenses is the number one reason retirees give for wanting to tap into their equity according to the Urban Institute’s Seniors’ Access to Home Equity report. The reason why is no mystery—it’s because, for most homeowners, that equity is their most valuable asset. Unfortunately, that asset is expensive to maintain. It stands to reason then, if you’re accessing that income to pay your everyday expenses like housing costs, it’ll eventually become depleted—unless you’ve invested that equity in a low-risk retirement account that pays out monthly dividends.
Downsizing your home is one of those things you can do to enhance your lifestyle during retirement. It’s all about converting the home equity into a stream of income that will last the remainder of your life.
If the cost and physical activity it takes to maintain your property have become intimidating, then it’s likely time to downsize and find something with less overwhelming maintenance. While every home will occasionally require maintenance that lies outside your physical or financial comfort zone, if you’re regularly struggling to perform the chores required to maintain your property and your home has become a source of frustration, it’s time to find a solution. Homeownership should be a pleasure, not a source of physical exhaustion or mental anguish.
The garden patio where you learned of the impending arrival of your first grandchild, the wall where you charted the heights of your kids (and grandkids!), the driveway where your kid spent hours playing basketball. It’s precious memories like these that lead retirees to linger longer in their family home than is wise for their health and their financial stability. If sentiment tempts you to hang on to your home too long, it’ll wind up doing more damage to your finances than you’d expect.
"If you make the move too late, your home just starts deteriorating. Then you’re going to have to spend equity to repair your house before it goes on the market. You don’t know how much that delayed maintenance is going to cost you if you wait too long to replace the roof or air conditioner."
Not only will you wind up spending more money to get your home ready to sell, you’ll have wasted years of cash on more expensive homeowners’ insurance, property taxes and more.
