The article, How Downsizing Can Save Your Retirement, in the September issue of Money magazine, covers the top four reasons why retirees downsize and four questions to address to avoid financial mishap when moving from one residence to another.
The article sites a recent Merrill Lynch and Age Wave study, which indicates that among retirees who move, half relocate to smaller homes. For those who opt to downsize, four primary reasons were cited:
- Lower monthly housing costs (64%)
- Larger home is too much work (44%)
- Fewer family members in the household (18%)
- Want to free up cash from prior home (18%)
While downsizing may be prudent, if you are doing it to lower your monthly housing costs, you want to make sure you don’t move to a place that causes your housing expenditures to increase.
To avoid this from happening, the article suggests that you tackle the four questions below.
Here or There?
You may think that moving from Washington, DC to a smaller city or town you will be able to add to your retirement fund. But, you need to take into account the cost of the move, real estate broker and settlement fees (on the sale of your home), and the impact of taxes and home insurance. Will your property taxes increase or decrease and will you need to buy hurricane or flood insurance in your new location?
If you decide to stay local, can you save money by moving a few miles farther out or by moving closer to public transportation so that you can forgo at least one of your cars?
Condo or Single Family Home?
You may think that living in a condo is cheaper than a single-family home. While in most instances it is, you should inquire about monthly condo fees, which can be several hundred dollars a month. Condo associations can also have restrictions on everything from dog breeds to overnight guests.
Buy or Rent?
While some retirees may prefer to buy a smaller home, sometimes renting can make more financial sense. For example, if you are not sure whether you will be in your new residence for more than five years, it may be wiser to rent. Also, if you have a lot of equity in your current home, but little retirement savings, it may be better to add the proceeds of a home sale into your portfolio rather than investing in a new home. Over the long haul, a balanced portfolio will most likely appreciate faster than residential real estate.
Now or Later?
Some retirees are reluctant to leave a home where there are many memories. However, if you are going to downsize, it may be more practical to take on this initiative in your sixties than in your eighties. You will be better equipped for the physical and emotional stress of a move when you are younger. You should also make sure that your new residence has amenities or features that can allow you to age in place, such as one level living or a step-in shower.
Read the full Money article here.
For more guidance on the downsizing process, contact the senior real estate specialists at the Eric Stewart Group. We have over 27 years of experience helping seniors 55+ downsize from a larger home to a smaller residence across the metro area. For additional insights on downsizing strategies, download our FREE Rightsizing Guide.
