If you're nearing retirement, and live in a home with unused bedrooms or increasingly daunting stairs, chances are you've considered downsizing: moving to a smaller home that better matches your current lifestyle and financial needs.
But is downsizing in retirement the right choice for you? It greatly depends on your personal situation and preferences. If you're an empty nester and still on the fence about downsizing, consider these five points.
1. Income Gained from the Sale of Your Home
Your home may still be a valuable financial asset, albeit an imperfectly sized one. Home equity is the single greatest source of wealth for a large proportion of older Americans, according to the 2010 Health and Retirement Study from the Survey Research Center at the University of Michigan. By selling your home and moving into a less expensive one, you might have the potential to turn some of your home's value into additional money for retirement.
2. Lower Cost of Upkeep in a Smaller Home
Maintaining a large home can cost a lot of money, from your electric bill to your yard maintenance costs. By downsizing, you can save on costs related to insurance, property taxes, utility bills, and upkeep expenses.
3. Opportunity for a Lifestyle Change
Along with the financial considerations of moving to a new home, are you looking for a lifestyle change? If you want to be within walking distance of restaurants and attractions when you retire, for instance, it might be a good idea to move from your large suburban home to a condo in the city. Or if you anticipate relying on your kids more in retirement, you might choose to retire closer to them.
4. Constrictions of Less Space
Downsizing means fewer square feet. If you think you'll miss having extra space, decide which is more of a priority for you: having more space or having less to clean and maintain.
It's also important to consider the less-obvious repercussions of a smaller home. For example, you'll have fewer bedrooms to host relatives at the next holiday gathering, and if there's a chance of an adult child moving back in someday, he or she will need space to live.
5. Emotional Factor of Leaving Behind Your Home
If you've lived in your current home for a long time, it's likely valuable to you both as a store of memories and, if you've paid off the mortgage, as a monumental financial achievement. Before making the decision to downsize, think about whether you're comfortable parting with such a meaningful asset.
It can be emotionally difficult to live in a new area or a smaller space, especially if the move carries the baggage that you're reducing your standard of living. Still, such a move can prove to be rewarding if your new home is better matched to your lifestyle in retirement — and provides you with the added income to pursue that lifestyle. It's a matter of knowing your priorities and making the best decision for your situation.
Calculate how much you might have in retirement to help understand your options.
