If your kids are grown and you are still living in a large, empty nest, downsizing is a natural consideration, especially when the kids and grandkids don’t stay overnight on a regular basis. Downsizing before retirement is a growing trend for people who are ten years or less from retirement. Downsizing may be a beneficial part of your estate planning, especially if you have a considerable amount of equity. Downsizing to a smaller home is a quick and easy way to save money and stretch your retirement funds.
Financial Upside of Downsizing
Reducing your housing costs is one of the quickest ways to increase your retirement savings, because the less money you have locked into your housing, the more money you will have to invest or put into savings. For example, if you sell a home valued at $2,000,000 with a paid in full mortgage and move to a $1,000,000 condo, after transaction costs, you may have approximately $750,000 extra to add to your retirement fund. If you live in a home where you are still paying a mortgage, moving to a smaller home can greatly reduce your monthly housing payment. A smaller home is also less expensive to furnish, maintain and heat/cool. Next to the mortgage payment, utility bills are typically one of the most expensive costs each month, but a smaller home or condo can often save you $20,000 each year or more. Renting a home, apartment or condominium can save you even more money, because you will not be responsible for property taxes - and renters’ insurance is significantly less expensive than homeowners’ insurance.
Emotional Downside to Downsizing
There are obvious downsides to downsizing such as leaving the home you are familiar with and leaving your friends and neighbors. There is an emotional bond to the home where you raised your family and spent some of the happiest times of your life. If you are considering downsizing from the family home, you may experience resistance from your children. However, for as many downsides as there are, if you are seriously considering downsizing, you have to take into consideration what benefits outweigh the disadvantages. Moving in general can be a stressful situation for anyone, but when you are downsizing you will not only be moving, but will most likely need to get rid of stuff. The new home will have less space and it can be emotionally difficult to sell or give away the items you have collected over the years.
Emotional Upside to Downsizing
The bottom line for most people is there are more advantages than disadvantages to downsizing. Moving to a smaller home means less clutter, a feeling of freedom, new opportunities and meeting new friends. When you have fewer responsibilities regarding your home, you have more opportunities to do the things you always wanted to do after retirement, such as traveling. If you move into a condominium or an apartment, there are usually a vast array of amenities that come with your new home such as a pool, exercise facilities and community gatherings. Moving to a new, smaller home is a great opportunity to start fresh and redecorate to your taste as opposed to what is best for the kids. Most people experience less stress and a greater peace of mind when they no longer have large spaces to clean, a lower or no mortgage and reduced utility bills, as well as more money in their retirement kitty.
Once you have weighed the advantages and disadvantages of moving to a smaller home, it’s time to put everything together. Before you make any rash decisions, it is important that you sit down with your spouse, kids and grandkids to talk about your ideas. It is also important to meet with your financial planner to weigh the financial upsides against the financial downsides and to find out what type of financial plan best suits your needs. When searching for a new home, not only should you know whether you want to buy or rent, but it is vital that you know what is going to be important to you in the new house. For example, downsizing may mean giving up extra bedrooms, but you can still have a gourmet kitchen. The decision to downsize can be an emotional decision, even when it’s the most rational alternative, so it is important to sort through your emotions and consider the benefits, which can be significant.