The question staring many would be retirees in the face, what are the pros and cons of downsizing your home for retirement? Should you remain in your existing house or get something smaller and more affordable?
The advantages of downsizing for retirement include reducing expenses, a home better meeting your needs, strengthening family ties and pursuing interests. The downsides are the emotional upheaval, real estate / moving costs, need to declutter and less space / privacy.
Reasons To Downsize in Retirement
There are multiple reasons, some by choice and others out of necessity.
External forces such as health decline, financial hardship or the loss of a partner can force the issue. Setting these aside, let’s focus on why people might choose to downsize.
Almost four in ten retirees (38%) move to a different home, according to a study by Transamericacenter. Frequently cited reasons include:
While many of these reasons overlap, clearly many folks desire to make changes in retirement. The most compelling reason is to reduce expenses, especially when there’s significant debt or an outstanding mortgage.
Closely related is downsizing which can further trim costs. In addition, this could enhance your retirement lifestyle with lower maintenance, closer proximity to family and friends or even a milder climate.
The following infographic illustrates the pros and cons of downsizing your home for retirement.
Reduce Expenses and Debt in Retirement
Many retired couples find themselves “house rich and cash poor”. They’re surviving on a fixed income and their savings. And, the price of almost everything keeps going up and up. In fact, we’re witnessing the highest inflation seen in decades!
This impacts utility bills, insurance, taxes and everyday maintenance costs. On top of that, a major repair such as a new roof will cost thousands of dollars.
If upgrades and renovations are desired, these can, also, quickly add up. The average cost for a bathroom remodel is about $10,000. Redoing a kitchen is even more costly.
If your home has significantly appreciated in value (as most have), you may be in a position to turn everything around. Downsizing in retirement is a great way of reducing expenses while getting something which better meets your needs.
Downsizing Doesn't Always Reduce Costs
Sometimes, the average older house is about the same value as a condo or townhouse. In other words, you’re swapping one for the other. That’s not to say there may not be other benefits. However, saving money may not materialize.
All too often, the monthly maintenance fees are higher than the upkeep you had with your house. If you’re not careful, you could find yourself in an underfunded property.
The board can levy a one-time assessment fee for major costs such as a roof replacement. They could also increase monthly fees.
Better Meet Current and Future Needs
Downsizing in retirement provides the opportunity to find the best place to meet your current and future needs. This includes both the type of property and the location. Some examples include:
A major factor for my wife and I is traveling more and our desire to winter in warmer climates.
Getting someone to look after our place has become quite the ordeal. Thus, we need something we can walk away from and not worry about.
If you’re thinking about downsizing your home for retirement, consider your needs, what’s important to you and what your “perfect” place might look like.
Strengthen Family Ties and Friendships
Families tend to drift apart with everyone leading busy lives, pursuing careers or raising children. Distance further compounds everything. While everyone does their best to stay in touch, it’s never quite that easy.
Retirement is an opportunity to turn this around and strengthen family ties. You have the flexibility to relocate and be closer. As a general rule, the further away you live, the less time you spend together with loved ones.
If your son / daughter and grandchildren live four states away, you likely don’t spend nearly as much time with them as you’d like.
The same could apply with an aging parent. In fact, at this stage of life, living nearby and providing some support could be invaluable.
Alternatively, let’s say your best friends live in Florida. Instead of visiting once or twice a year, perhaps it’s worth considering moving there. Besides being warm year-round, Florida is often deemed one of the top retirement states.
Greater Flexibility to Pursue Interests
As much as everyone loves their home, it may very well be holding them back. We discussed how many retirees are cash poor with all their equity locked into the property. Quite bluntly, they can’t afford to do the things they’d enjoy.
In addition, home ownership can be a demanding mistress. There always seems to be some chore or repair needing to be done.
In contrast, retirement communities are basically maintenance free while catering to a wide variety of interests. Amenities often include common area facilities, gyms and pools.
In our article, Advantages of Retirement Communities, we discuss the many benefits to look for.
The Cons: Why You Shouldn't Downsize, At Least For A While
Approximately 60% of retirees prefer to remain put. After all, they’ve worked hard to be mortgage free and it suits their lifestyle.
They may have done renovations over the years and love their kitchen, bathrooms, etc. Why would they want to start over?
Other factors might include a safe neighborhood and fantastic neighbors. In addition, they have close proximity to all the services they use such as shopping, medical, hair salon, etc. In short, they’re happy right where they are.
Upheaval and Emotional Cost
There’s no question this can be an emotional time. It’s more than just a house; this is your home! Leaving can be a saddening experience. All those reminders of happy times and family get togethers.
Saying goodbye is never easy as it’s unlikely you’ll ever be able to return. So, you’ll want to make sure this is the right decision for you.
Deciding to sell can lead to regret, especially when your home’s filled with fond memories. Besides all the upheaval and costs associated with moving, there’s no guarantee you’ll be happy in your new place.
Relocating elsewhere can be a big adjustment. Everything you’re familiar with will change, depending upon how far away you move. This could include neighbors, favorite stores, doctor, dentist and so on.
Real Estate and Moving Costs
Buying and selling real estate is intrinsically a lengthy and expensive process. Before listing, any necessary updates or repairs should be done to maximize the value and curb appeal. These can easily cost hundreds of dollars or more.
The real estate commission is the biggest cost, usually ranging between 5% and 6%. On a $300,000 property, this could be over $15,000. In addition, legal fees, closing costs and inspections can further erode your net return.
Depending upon how far you’re moving, hiring a moving company will be an additional cost.
They need to charge for time, labor, mileage and fuel to transport your household items. When moving out of state, you can expect to pay between $2,200 and $5,700.
In summary, the selling and moving costs could be $20,000 to $30,000.
Decluttering and Downsizing Your Possessions
Your new place will likely have nowhere near the storage capacity you currently have.
The whole point of downsizing is making more effective use of a smaller space. Many of us have more “stuff” than we know what to do with which will require decluttering.
The problem is most of our possessions either have sentimental value or they’re only worth pennies on the dollar. This creates a dilemma as to what to keep and what to get rid of.
For example, over the years, I’ve accumulated a vast array of power tools for my various projects. My router was well over $200, yet I’d be lucky to sell it for fifty bucks. Not to mention all the time and hassle in selling it.
However, after downsizing in retirement, my intent isn’t to tackle new projects. So, I’ll need to sell my tools for whatever I can get.
Unless you’re able to “right size” your possessions, your next place will be jammed full of stuff or, alternatively, you’ll be paying storage fees. This is a valid reason to delay moving into a smaller place until this matter is resolved.
For more information on decluttering, check out our post, The Practical Guide of Decluttering Tips for Seniors.
Less Space and Privacy
Another adjustment could be feeling cramped in your new home. There’ll be considerably less space which will take time getting used to. In addition, parking might be restricted or there’s rules about visitors.
This could limit entertaining other couples or hosting a family get together. Even when there are no restrictions, your space might be insufficient. Especially for out-of-town guests if you no longer have a spare bedroom.
Another drawback is reduced privacy with the greater potential of having a less than ideal neighbor.
In a condo type facility, noise transmits through shared walls and units above you. Instead of a tranquil backyard, at best, there’ll be a shared common area.
Space and privacy are lifestyle trade-offs which should be carefully considered.
At What Age Do Most Seniors Downsize?
Many retirees choose to defer this decision for years as they’re happy where they’re at. Others decide to downsize to enhance their retirement and do the things they want. It’s also an opportunity to reduce expenses and debt.
The vast majority of seniors downsize between the ages of 62 and 74. This is generally done to achieve a better retirement lifestyle or due to failing health, financial need or inability to maintain the property.
Except in rare exceptions (such as death), we’re all going to be forced to sell our homes at some point.
Almost inevitably, the day will come when health issues, financial need or inability to maintain the property make remaining in place untenable.
This is very much a personal decision depending upon circumstances.
Closing Thoughts on The Pros and Cons of Downsizing Your Home for Retirement
Sooner or later, we’re going to be forced to downsize. Either because of health issues, financial need or home maintenance becomes overwhelming.
You either plan and have a strategy on when to downsize or react when the time comes. In the latter situation, events may spiral beyond your control with someone else making the decisions.
Flexibility is key as things will change and the right decision now will likely be much different in ten or twenty years. Two aspects to consider, where do you want to live? What about all your “stuff”?
When to downsize really is about making the most out of your retirement. The bottom line is you, your spouse, and loved ones are going to be happiest when you’re proactively managing this thorny issue.