As you approach retirement age, it’s likely you and your family have considered downsizing. This is a common practice that can make great financial sense—you’re living off of a fixed income, so you want to limit your expenses. Even if you’ve paid off your mortgage, however, your home can still be a significant drain on your finances.
Moving into a smaller home can be a great way to limit the amount of money you’ll need to spend on housing, but it’s not as simple as picking a smaller house. Downsizing requires careful thought before taking action. Consider these tips:
Compare Your Current Total Homeownership Costs to the Costs of a New Arrangement
Downsizing is all about cutting your costs, so it’s crucial that you run the numbers on the yearly cost of staying in your current home versus the home you’re considering. Calculate your current mortgage, taxes, insurance, utilities, maintenance and other costs, and lay them out alongside those of your potential destination. This online retirement calculator from The Financial Security Project at Boston College can show you how much you’re spending now and how much you can expect to save by downsizing.
You might be surprised at what you find when you do this. For example, your new home could be smaller, but it could be in a town with higher property taxes, which means your yearly costs would be the same as if you stayed put. Or maybe the property is in a location vulnerable to flooding, and the insurance costs are higher. Either way, that smaller home could have a larger price tag, which defeats the purpose of downsizing.
Factor in Moving Costs
Even if you can sell your current home at a profit, you have to factor in the costs of moving to a new home. Realtors’ fees, closing costs, movers, furnishing your new home—all of these can add up to take a bite out of the profits you’d make when selling your home. As a general rule, you can usually expect your moving costs to be around 10 percent of your home’s value, according to Bankrate.
Consider the Logistical and Emotional Costs of a Move
When you’re deciding whether or not to downsize, it’s easy to get caught up in the numbers. But there’s more to moving than just the dollars and cents. Consider the emotional and logistical impact of your move. Will you be further away from friends and family? Will you be able to access public transportation if you become unable to drive?
The finances are important, but there are non-financial considerations that are also critical to getting right.
Get the Family Involved; Enlist Professional Financial Help
A retirement is never about just one person; it will involve your whole family, so be sure to get their input on your goals and plans for retirement. These additional opinions will help ensure everyone is aware of your priorities and how they fit into them, so your retirement can happen more seamlessly.
Even if you have the input of your family, consider hiring an accountant or personal financial advisor who can take an objective look at your goals and the financial means you have to achieve them. In all the excitement of retirement, it’s easy to overlook some of the details that could put a damper on your plans. A professional will help ensure you don’t put unnecessary financial strain on yourself.
Consider Other Options
Downsizing doesn’t only have to be a matter of moving out of your current home into a smaller one. There are other ways to cut your home-related costs that don’t involve moving, for instance: refinancing your mortgage to lower your monthly payments. If you have the space for it, you could also consider renting out a room in your house for an additional source of income.
If you are set on moving out of your current home, you don’t necessarily have to buy another home; renting may be a viable option. Granted, rental rates don’t have the predictability of a fixed-rate mortgage, but if you find a stable rental property, you won’t have to worry about things like property taxes or maintenance and groundskeeping.
Declutter Your Space
If you’re moving into a smaller home and want to everything to fit comfortably, you’ll have to get rid of some of the possessions you’ve accumulated over the years. You should be able to sell or donate most of your items, and for anything with sentimental value, consider finding a willing family member to take it off your hands.
Even if you’re not moving, decluttering your home can be a great way to simplify your space, or make room for new hobbies. Make a list of things you can bear to part with and find the best way to find them new owners.
Whether you buy a new home, rent, or convert your existing home to better suit your retirement needs, it’s important to look at downsizing from every angle. These tips will help give you and your family the tools to make retirement more conducive to your new chapter.
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