For many people, their house may be their biggest asset. But it also can be their biggest expense. That's true whether they're planning for retirement or even if they already are in retirement. So it's no wonder that many homeowners begin to think about selling their home and moving into a smaller one as they approach their golden years.
Downsizing your home doesn't have to mean downsizing your lifestyle. Homes have steadily expanded over the years with the average home now more than 2,600 square feet in the U.S. according to Census data – 60% larger than it was 40 years ago when families were bigger! So there is plenty of room to downsize without cramping your style.
But downsizing doesn't necessarily mean moving to a smaller home. It can also mean moving to a less expensive residence that's the same size. Something as simple as moving from a top, reputable school district to a district that is not highly rated may lower the cost of a house. And if you do not have school age children, the quality of the school district may not be that important to you.
If you've been kicking around the idea of cashing in on your home's equity and moving into a smaller property, there are a number of reasons why it may be the best move you can make right now:
The housing market in our area has rebounded quite nicely from the recession with the value of many homes climbing in recent years. Cashing in on some of that equity appreciation may help provide retirement income and extend the life of your nest egg. For more information on the propriety of such a move, please first consult with your financial advisor.
A smaller home may mean a smaller mortgage payment each month if you are still paying off an existing loan. Or it might mean paying off your mortgage entirely and being debt free on your new home. Additionally, downsizing may lower your property taxes, energy costs, property insurance and ongoing maintenance and repair expenses depending upon the choices you make.
According to the Center for Retirement Research at Boston College (CRR), housing costs (including utilities, taxes and upkeep), represent one of the biggest expenses for a retired couple – 30 percent of expenses for a couple aged 65-74. That's money that can be spent on other things in retirement.
For example, CRR estimates that a couple downsizing from an $800,000 home to a $500,000 home may be able to cut their annual expenses and increase their annual income from savings by more than $17,000 combined. CRR provides a calculator that may enable you to determine your own savings here. As always, it’s a good idea to consult with your financial advisor before making any decisions.
Some homeowners are reluctant to trade a house for a condominium or town house because of concerns regarding the financial impact of homeowners’ association fees. While such fees can change one’s monthly budget, keep in mind that you may be paying similar expenses as a homeowner in the form of maintenance and upkeep costs.
While a smaller home may mean less space, it could also mean less time and aggravation spent on keeping up a big house. Without all the work that goes into keeping up a bigger home, you may actually find a lot more time to enjoy traveling, hanging out with friends, picking up new hobbies and, generally, having more fun!
Moving from a suburban home to an apartment or condo building in a downtown area with amenities on site may open up a whole new world for retirees. Those who have made the switch often find that they now can enjoy more trips to the theater, nightclubs, restaurants, shopping, as well as taking advantage of fitness centers and other on-sight activities.
According to the Wall Street Journal, it can pay to downsize sooner rather than later for those approaching retirement or already retired. The financial benefits can add up over time. Additionally, as we get older, moving gets harder thus it may make a lot of sense to move now rather than waiting. If I can help answer any of your questions about downsizing, please give me a call or e-mail me today. I'd be happy to discuss the pros and cons of making a move and help you decide if downsizing is right for you.