Downsizing is a common retirement move. At a later stage of life, your kids are likely grown and out of the house, so you need less space than you once did. Or perhaps you just don't want to deal with the upkeep of a larger home. There is also the reality of a fixed income in retirement to contend with — and housing is usually one of the biggest line items in any budget.
Given all of these factors, it may seem like downsizing for your golden years is a no-brainer. But while it is certainly a move that "makes sense for some people, it's not a given that it will work for you," said Kiplinger. This is why it is worthwhile to "consider the benefits of staying in your home before rushing to put it on the market."
What are the benefits of downsizing in retirement?
Perhaps the most obvious benefit of downsizing is the potential savings. "Even if you've paid off your mortgage, you're likely still paying for home costs like insurance, maintenance expenses and property taxes," which you could lower a "substantial amount by moving into a smaller home," said investment company Edward Jones. This may free up money in your retirement budget to do other things, such as travel, or help you invest more or pay down debt. You also stand a good chance of making money by selling your home and trading it in for something smaller.
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Additionally, you could free up some time and energy by jettisoning the bigger house. "Having a larger home can also mean more work," since "not only do you have to keep up with maintaining the house itself, but you also have to take care of everything in it," said Bankrate.
Are there any drawbacks to downsizing?
Downsizing is not quite as straightforward a win as it might seem. While the possible savings are enticing, people tend toward "overestimating" their current home's worth while "underestimating what a new home will cost," not to mention the added cost of moving, said Investopedia. There are also taxes and closing costs to consider, which could cut into how much extra money the move actually results in.
Furthermore, the logistics of house hunting and moving usually eat up a good amount of time and energy. You will also have to adjust to having less space, not to mention that moving "might feel jarring at a time in life when you're already making other adjustments," said Kiplinger.
When does it make sense to downsize for retirement?
To make a better informed decision, it will help you to "run the numbers," said Investopedia. "You may find ways you didn't realize would save you money on the switch, or you could decide it pays to stay where you are, at least for now."
The choice is not purely a financial one. "If you're tired of the same old walls and the same burdensome repairs, you may decide that shedding square footage makes sense for you," said Kiplinger. But if, on the other hand, "you love your community and don't want to leave, that's reason enough to stay put if you can afford to."
