Downsizing: Is It the Right Strategy for Your Retirement?

If you’re like many retirees, a big component of your financial plan is the idea that you will spend less in retirement than you did while you were working. That’s true in some cases. You may save money on gas with no commute to work. You may dine out less, and you may need less insurance. There’s a wide range of avenues to save money after you stop working.

One way to save a significant amount of money is to downsize to a smaller home. A smaller, less expensive home often saves you money in a number of areas. You’ll spend less on your mortgage, taxes and likely your homeowners insurance. You may have lower costs with homeowners association fees, utilities and maintenance.

As a bonus, if your current home is paid off, you may net some equity in the transaction. You can put that into your savings to help generate retirement income.

At first glance, downsizing may seem like a no-brainer. While there is a very compelling case for downsizing in retirement, it may not be right for everyone. Below are a few reasons to at least think twice before selling your current home. Ask yourself these questions before you put your home on the market.

Are the financial benefits really that great?
It’s natural to assume you’ll save a significant amount by downsizing. However, you may want to look past the assumptions and do a detailed analysis. There may be costs that you aren’t considering.

For example, property taxes often vary wildly from area to area. The new home may need work that you hadn’t considered. If you don’t have an HOA fee now, how would you feel about paying one at your new property?
Also, there could be costs associated with selling your home. You may have to pay a Realtor and closing costs. You may need to drop the price far below what you’d anticipated.

Come up with a worst-case estimate to see what it would look like if you lowered the price and also had to pay a number of high costs. Would downsizing still be worth it?

Will the new house meet your personal and social needs?
The decision to downsize shouldn’t be only a financial calculation. First and foremost, your house is your home. It should be a place in which you feel comfortable and are able to live the kind of retirement you’ve imagined for yourself.

Determine whether you can be happy in the smaller home. If you like entertaining family and friends, will you have space to do that? How would you feel if holidays were held at a different family member’s house?

Also, consider the new home’s location. Is it close enough to your friends and family to stay socially engaged? Or will it be inconvenient for you to connect with friends in person? Is there a chance you could become disconnected from your circle of friends?

This isn’t a small consideration. As you get older, you will likely need more support than ever from friends and family. If you have mobility issues or a cognitive impairment like Alzheimer’s, you may even need care and assistance. If your friends and family aren’t nearby, you may not get the care that you need.

Not sure how downsizing fits into your retirement plans? Contact us at Gallagher Financial Group in Hurst, Texas, to learn more. We can analyze your needs, budget and objectives, and help you determine your plan for retirement income. Contact us today.

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
15966 - 2016/8/4