Is Downsizing Your Home the Right Move?

As you near retirement, you need to consider how your cash flow will change. Where you want to live is one of the most consequential decisions you may make. Should you age in place or downsize?

There are many important decisions to make as people near retirement or consider what kind of life they want in their senior years. We have discussed many of them in recent years, but one of the most difficult and consequential choices is where you want to live. Should you age in place or downsize?

The decisions you make can certainly affect your financial well-being, as well as your social life, emotional well-being, health, and overall lifestyle.

Do the Math

For many years, downsizing to a smaller home was considered a no-brainer in terms of finances. You could sell the large house you’ve lived in for many years, buy a smaller home, and pocket the huge difference between the two. Nowadays, however, the financial advantages are not always as clear.

Pros: There’s a good chance the value of your home has soared since you bought it years ago. Selling is often the best way to cash out those profits and shore up your retirement nest egg. Also, you can do so without incurring any capital gains tax obligations if your adjusted profit is less than $250,000 for a single person or $500,000 for a couple.

If you use a chunk of that windfall and pay cash for your new home, you won’t have to deal with currently high mortgage rates, and in most cases, your monthly housing expenditures could drop significantly.

Cons: Prices have skyrocketed because of the relatively short supply of smaller homes on the market. In addition, mortgage rates are near the highest they’ve been in decades, so the savings on monthly housing expenses may not be as significant as they were just a few years ago. That’s especially true if you still carry a mortgage with a locked-in low-interest rate and trade that in for a mortgage in the 7 percent to 8 percent range.

Like many big financial decisions, you should prepare a comprehensive balance sheet of potential savings. And it’s not just your monthly mortgage payment. Don’t forget to factor in a host of other costs (one-time expenses, such as realtor payments and moving costs) and savings (lower real estate taxes and utility costs, no lawn care, and maybe a free gym membership in some housing complexes). In addition, the cost of living, insurance, and other expenses could be higher or lower in a new area.

You Can’t Put $$ Figures on Everything

Moving is about a lot more than dollars and cents for many seniors. It’s a lifestyle decision.

Pros: Do you want to live closer to your grandchildren? You can’t put a dollar value on that. For some people, that outweighs all other factors.

Downsizing also represents an opportunity for a new start in this new phase of your life. You can pick an area that offers the amenities that suit the lifestyle you want to live. That could include the walkability, restaurants, theater, and more that comes with city living, or the golf course that may come with some 55-and-over communities.

You can live anywhere since you are no longer tethered to an office commute. Maybe you’ve had enough winter weather to last a lifetime. Florida and Arizona beckon!

Cons: You may decide it’s not worth sacrificing the space you have in your current home. It might be the perfect spot to entertain friends and those darling grandkids.

Downsizing usually means getting rid of a lot of possessions. Not only is that a daunting task, but it may also be emotionally challenging. Moving from a 3,000-square-foot home into one half the size means you can’t take it all with you.

Downsizing Can Make Life Easier

As you know, owning a house comes with numerous responsibilities, many of which you can dispense with if you move into a smaller home.

The biggest advantage to downsizing is less maintenance. Caring for a large single-family house, especially one showing its age, can be challenging, time-consuming, and expensive. (No puns about how we might be showing our age too!)

In many townhouses, condos, and retirement communities, you don’t have to worry about snow removal, lawn care, raking the leaves, fixing the roof, a flooded basement, and many other potential headaches.

Retirement should equal less stress; a smaller home may eliminate many of your chores. Even on a daily basis, the less space you have, the less time it takes to clean it, and the more time you have to focus on an active and fulfilling lifestyle.

Other Housing Considerations in Retirement

Depending on your circumstances, including age and health, you might consider moving into a retirement community or an assisted living facility.

In between those options are CCRCs – Continuing Care Retirement Communities. They offer different levels of care. You can start out in independent living and if your health deteriorates, you can move into more advanced levels of care within the same facility. They usually provide a strong social environment and the security of knowing that you won’t have to move again if your health declines. The biggest drawback is that CCRCs can be significantly more expensive than other options.

Some experts say you shouldn’t wait until you need to move; by then, you may no longer control the narrative, and your options are greatly reduced. It’s much harder to move in your 80s than in your 60s.

According to recent studies, about three out of four seniors want to age in place rather than downsize. They prefer the familiarity, comfort, and community their current home provides.

Nevertheless, downsizing remains popular for many seniors seeking to simplify their lives, reduce financial burdens, and embrace a new chapter of flexibility and opportunity.

Still struggling to decide what’s right for you? Contact your EKS advisor to talk it through. We’re always happy to hear from you.

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