Downsizing for Retirement? Start Here!

If you’re one of the millions of Americans retiring in the next few years, you’re probably dreaming about what the future holds. Many retirees consider downsizing their homes as retirement approaches. The reasons for downsizing are as diverse as the retirees themselves: some downsize for financial gain, some to move closer to family or friends, and some for necessity or accessibility concerns.

No matter what your reason, here are some items to consider before putting your home on the market.

Downsizing To Free Up Capital

A recent study found that 42% of Americans have less than $10,000 set aside for retirement. With an ever-increasing cost of living and healthcare costs, social security will do little to get you through your golden years.

If you’re one of the millions who have less than you’ll need in your retirement funds, selling your current home might free up valuable capital. Using the money you earn from the sale of your home, you’ll be able to purchase something smaller and invest the rest to keep you living comfortably as you age. Consult a financial advisor to learn more about other investment opportunities to secure your financial future.

Moreover, if you are in a healthy financial position, downsizing will free up money you can use to travel, purchase that car you’ve always wanted, or buy a vacation home on the beach.

Know What Your Home is Worth

Many retirees are shocked to learn how much equity they have in their homes – and not in a good way. Often, homeowners see what other homes are selling for in their area and assume their property is worth the same. Of course, that’s not always the case. The value of your home depends on a variety of factors – location, the age of the house, and recent updates, for starters.

It’s important to get with a licensed real estate agent who can give you an accurate assessment not only of your home’s value in today’s market but how much you’ll have to shell out to buy your retirement home. Understanding the complete financial picture up front will prevent any unpleasant surprises down the road.

Considerations When Downsizing Your Home

As we age, home buying comes with an entirely different set of considerations. If you’re ready to retire but aren’t sure where to move next or what type of home to purchase, consider the following:

• Cost of living and home prices. Will you be able to comfortably afford a new home and the cost of living in your desired living location? If you’re moving from a single-family home in the suburbs to a condo downtown, it may cost you more to sell your current home.
• Senior communities. Do you want to live among other active adults? Many cities offer 55+ communities, complete with amenities and services to help you live independently as you age.
• How much space do you really need? Do you have family in the same town, who won’t require a guest room? Or does your family travel to visit you and need a guest room when they stay? Will you host Thanksgiving dinner, requiring a large kitchen and dining room, orcan you get away with a small, eat-in kitchen?
• Is it accessible? It’s not something we think about early on, but if you’re downsizing because of retirement, it’s important to note whether or not your home will be accessible as you age. Is the master bedroom on the main floor? Are there accessible showers, sinks, and appliances? Considering a home’s ease of access might allow you to stay in your home – and live independently – longer.
• Tax considerations. Depending on the age of your home, your mortgage amount, and the current value, you could be looking at steep capital gains taxes on the sale of your home. Check with a financial advisor or tax attorney to decide whether selling your home and downsizing makes economic sense.

Benefits of Downsizing

Maybe you’re still on the fence about downsizing. Perhaps you’ve been in the same home for decades, and the thought of updating your current home, putting it on the market, packing up all your belongings, and moving somewhere new seems overwhelming. While downsizing isn’t practical in every situation, there are some perks to giving up your larger home:

• Lower utility costs. Less square footage means lower heating, cooling, and electric bills. That’s more money to put in your travel fund every month!
• Less upkeep. Downsizing means you’ll have less house to clean and maintain. Bonus points if you move from a single-family home to a townhome or condo: no more mowing lawns or pulling weeds!

Downsizing your home can be the key to a blissful retirement. Still trying to decide where to move? Check out this article for some of the best retirement locations in the nation. When you’re ready to take the plunge, check out these tips for getting your home ready to sell.