7 Tips for Downsizing in Retirement
COUPLES OFTEN START their married life in a tiny starter home, upgrade to a slightly larger home to raise a few kids, and then stay in that hopefully mortgage-free home in retirement. But many retirees no longer need a several bedroom home. And even if your spacious home is paid off by the time you retire, which is increasingly unlikely, your costs for maintenance and utilities are inherently higher.
This is why downsizing before or during retirement can be a good move for many retirees. If you think downsizing might improve your retirement finances, here are some tips to reap the biggest benefits:
1. Look at your total homeownership costs. If the point of downsizing is to save money, you’re going to have to run the numbers. Sit down and figure out what your current home costs you, including the mortgage, taxes, insurance, utilities, maintenance and other costs. Then, look at some scenarios for a smaller house to see how much you might save.
While you’re running the numbers, be sure to account for where you plan to buy your smaller home. Downsizing within the same neighborhood is likely to save you money. But moving from an affordable area to a city center or a more expensive state could actually cost you more.
2. Consider non-financial costs. There’s an emotional cost to parting with a place you’ve called home for decades, especially if you have plenty of good memories tied to that place. And if you’re considering moving away, say to a sunnier climate, think about the relational costs of being further from family and established friendships. How much you will save by downsizing may outweigh these emotional costs, but it’s important to consider them.
3. Don’t expect to double your nest egg. You may dream of selling your current paid-off home for big bucks, buying a smaller home in cash and investing the rest. This could happen and might give your retirement savings a big boost. But remember that the housing market is still in recovery mode. You may find that your home isn’t worth as much as you think, or that it’s hard to find a smaller home that meets your needs. Before you come to a final decision, it’s wise to talk to a realtor about how much you can expect to sell and buy for.
4. Calculate the cost of selling and buying again. Don’t forget to factor in the selling and buying costs of this process. Even a paid-off home can’t be sold for free. Ask your realtor about how much you can expect to pay when you sell your current home. Then, calculate the closing costs of buying a smaller home with the profits. You should also estimate how much it will cost to pack and move your belongings. If these costs significantly eat into your profits, you might want to rethink downsizing altogether.
5. Evaluate other potential options. Downsizing is not the only way to save on housing costs. You could also turn some of your home’s space into a money-maker by renting out a room or even creating a studio apartment above your garage. This could be especially lucrative if you live in a high-demand area. Steps like this could allow you to keep your home, but actually come out on top financially.
6. Sketch out how you actually use your space. If you’re not sure if downsizing is right for your lifestyle, take some time to think about how you actually use the space in your current home. Will you rent out a room? Do you have family and friends overnight often, host huge dinner parties or run a business from your home? These activities may justify the extra space if you can afford it, and you might not be able to do them in a smaller home.
However, if you plan to live a quiet life, downsizing might be a better fit for your lifestyle. If you go out to spend time with family and friends and your children aren’t likely to move back home, you might not need the extra space.
7. Consider a rental. Don’t write off the idea of renting when you’re thinking about downsizing your home in retirement. Renting could reduce your overall housing costs, and can make those costs more predictable since you aren’t on the hook for potential repairs.
Renting isn’t the right option for every retiree. You could face a rent increase you can’t afford or be asked to move. But a good rental situation could allow someone else to take care of repairs and yard work you aren’t equipped to deal with. So, don’t take renting off the table when you’re deciding what to do with your home during retirement.
See more at..https://money.usnews.com/money/blogs/on-retirement/articles/2016-05-18/7-tips-for-downsizing-in-retirement
P.C. https://money.usnews.com/money/blogs/on-retirement/articles/2016-05-18/7-tips-for-downsizing-in-retirement