Financial Advisor Insights

Downsizing Home in Retirement

The kids have flown the nest (finally!); you’re starting to think about retirement a few years down the road. You look at your big house and yard that need to be maintained and you wonder: time to downsize?

By Caroline E. Coderre

There are pros and cons to downsizing home in retirement – both emotional and financial. But in general, it makes sense to scale back your living arrangements in your later years. And if you’re going to do so, sooner is better than later.

 The first step is to take a hard look at your current home and location. Is it in an area that is conducive to aging in place? Do you have good public transportation options and community support services close by? Being 100% dependent on getting around by car in your later years can be very limiting to your way of life. It may make sense to move to a more urban area for all the resources available. Of course, urban homes often cost more than suburban ones, so even if you downsize the home prices may be similar. But a smaller home will generally be cheaper to maintain (as well as easier), even if you add condo fees in. Over the years, those savings add up.

Then, ask yourself, is your current home layout appropriate for an older person? Do you have a bedroom and bathroom on the first floor so that if you had an illness or mobility problems you don’t have to worry about the stairs? If not, is it worth making the alterations to your home so you can stay put? Or is the money better invested in a new place that will suit you better for the next stage of your life?

Leaving the home where you raised your family can be emotionally wrenching. You have visions of your children returning with the grandchildren for long visits. Look realistically at how often that is likely to happen – especially as the grandkids get to the age where they have many commitments. Would it be more practical to save yourself money by downsizing, and put the family up in a nice hotel nearby whenever they come to visit? (And it saves you a whole lot of work…)

Downsizing Home in RetirementMoving is without doubt stressful. You need to get rid of all the clutter that’s accumulated over the years; handle all the decisions and paperwork of selling and buying a new place; deal with cutting off and restarting utilities; and get used to a new neighborhood. But for exactly those reasons, it makes sense to downsize when you are relatively young and fit, rather than in your later years or after the death of a spouse.

If you downsize, you might need some financing to buy your new place, even if just for the short term. That is much easier to come by while you have documented income than after you’ve retired.

If you decide to stay in your home but need to adapt it for your later years, try to do so before you retire, while you are still earning money to pay for it. Taking a large chunk out of your investments early on for home improvements after you’ve retired will have a permanent effect on the amount of retirement income you can generate from your portfolio.

For those who do decide to downsize, they often see it as an exciting new lease on life, starting afresh in retirement with fewer responsibilities. Where to live is an important component of your retirement plan and requires as much consideration as your investment portfolio.

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