This question is one that many people think about as they start to consider retirement. But what is the right decision for you? The one thing everyone in this position will agree on is this life changing decision is deserving of the time it takes to consider all advantages and disadvantages.
There are multiple factors to consider when selling your home with the purpose of “downsizing” and then purchasing another (presumably smaller) home.
Listed below are some of the biggest advantages for homeowners.
The most obvious, and largest expense in this equation, is the mortgage payment itself. No one is going to want to go through the hassle of moving or “downsizing” if it is not going to lower his or her monthly payment. In a perfect scenario, you have been in your existing home for quite some time and you have acquired a large amount of equity.
That being the case, you might be able to sell your home and purchase another with cash using said equity, eliminating the need for a mortgage at all, or at least decreasing the mortgage payment significantly by being able to hand over a large down payment.
As your property size decreases, so will your property taxes.
Consider the difference you will pay in utilities. The cost of electricity, heating and cooling should decrease as the size of your home decreases.
Determine cost of living. We all know that housing and day-to-day expenses are higher in certain locations than others. If you happen to live in a location with a higher cost of living and choose to move to a location with a typically lower cost of living, you might find yourself taking less from your savings.
- Less time and worry with maintenance and upkeep: The smaller your home and parcel of land, the less time and worry you will be expending on weekly cleaning, seasonal preparations and general maintenance, indoors and outdoors. This might not only be a convenience, it might be something that becomes a necessity. Retirement age could mean the age of 65, or it could mean the age of 75, depending on your situation. If you happen to find yourself on the older end of that range, physical upkeep and maintenance might be something you simply do not have the energy or ability to handle any longer.
There are also some disadvantages to consider, such as the below:
- Your plan is to walk away with cash (equity) and lower your expenses, however the savings you anticipate might not be as much as you were hoping. For instance, you need to consider closing costs, real estate agent fees, and moving fees (if applicable). All of these will cut into the amount you plan to walk away with when selling your home.
- Also, consider the location you are planning to move to. Moving to a location with a higher cost of living will only cut into your savings, diminishing your retirement fund quicker than you planned.
- Are you moving to save money, but leaving your friends and family behind? Consider your social network before making this decision. Weigh what is truly important. Yes, you want to live comfortably financially, but you certainly do not want to do it at the expense of your happiness. During retirement, you will have extra time to do the things you enjoy. While you want to have the money to afford to do so, you also want to consider who will be around you to do them with. The downsizing, if to a brand new location, might allow you to gain financially but lose your sense of belonging and family.
- Downsizing means less space. While it is great to have less to clean and maintain, will you be ok with having less room for your possessions and entertaining?
If and when you should downsize is something retirees often find themselves considering. Ultimately, you need to determine how much money you will need to retire “comfortably” but also what you want out of retirement. Whether it is a large nest egg, ability to travel or new surroundings, the decision should not be made lightly as you do not want to end up regretting your choice after it’s too late.