Whether it's your children leaving the nest or making the choice to finally retire, a major life change can have you thinking about your new needs for your living situation. Sometimes that means relocating to a warmer climate or moving to a new city to be closer to grandchildren. Alternatively, you may be happy with your location but want to change your living arrangement to something bigger or smaller. You may also choose to stay in your current home until a different life event makes you reconsider your situation.
No matter what choice you make, it is important to consider all factors and make plans accordingly. For most the biggest component is financial feasibility, but we will also look at other pros and cons of upsizing or downsizing help you make an informed decision.
According to TD Ameritrade, 42% of Americans plan to downsize in retirement.1 There may be many reasons someone would want to downsize in retirement. Here are just a few of the benefits:
Finances and financial flexibility are major concerns for many seniors. Reducing the size of your house often reduces your mortgage payment, rent or property taxes. You may also experience decreases on other monthly costs such as utilities, insurance and upkeep. Furthermore, the sale of a larger home may provide you with more capital to be spent, saved or invested as you see fit.
Maintaining and cleaning a smaller home is not only often cheaper, but requires less time and energy. Some communities, especially those designed for people of retirement age, include yard care and other services. Remember that the more services a community offers, the more fees they will charge so it is important to fully understand all additional costs of living in a specific neighborhood or community.
Occupants and Storage
As you have fewer occupants in a house, it's not only the amount of bedrooms you need that reduces. You also will probably have less "stuff" to store (Good luck convincing your kids to take everything with them). With fewer mouths to feed, you may no longer require that large kitchen. If not repurposed for a new hobby in retirement, the kids play room may also no longer needed.
Living simply allows you to focus your time on what you truly love. Maybe it's picking up an old hobby, attending special interest classes, traveling, or just good old-fashioned relaxing.
Downsizing does have its drawbacks. Here are a few you may want to consider:
Selling Your Home
There are considerable costs and time commitments involved in selling a home and moving. Decluttering, repairs, and staging are just some of the considerations when making this decision. This can be a very stressful time. You may be forced to part with possessions you've cherished for years.
It certainly isn't free to move. You will likely need to hire movers and realtors and consider the tax liabilities involved in downsizing.
Lack of privacy is one factor that many fail to consider before moving to a smaller home. Neighbors are often much closer in retirement communities and my even share a wall.
Space and Storage
You will find that space is at a premium in smaller homes. If you are the type of person that likes to entertain family and friends this may be an important factor to consider. Smaller homes means fewer and/or smaller rooms.
Storage unit facilities often place themselves near retirement areas but that's one more expense to add to your retirement budget. It is also a bigger hassle accessing what you need than it would be if stored in our own home.
While not as common as downsizing, some seniors choose to increase the size of their home or property in retirement. You may find with the kids out of the house and after a discussion with a financial professional that you are are in a solid financial position to upsize. Here are a few benefits to buying a bigger or newer home.2
Newer homes generally require less maintenance and renovations.
While the kids may no longer live in the house, you may want them to visit (especially if they are bringing the grandchildren). Upsizing makes sense if family and friends visit often, or if extended family shares the home.
You may have always wanted a bigger kitchen and are at a point in your life where you can afford it or maybe you want to pick up a new hobby that requires more space.
New Income Stream
With new businesses, like Airbnb, it has become easier to rent out a part of your house that aren't using. An extra source of income can be very beneficial to vital for some retirees.
The downsides to upsizing should be fairly obvious at this point. The financial cost is probably the most prohibitive for those contemplating a larger home. This is why it is important to speak with a financial professional that you trust. They will be able to show you what financial impact this decision would have on your savings. Together, you can make an informed decision on what makes sense for your specific situation.
No matter what choice you make, the strategies for transitioning remain the same. Research all financial aspects of a move, consider tax obligations, visit the new community before committing, and make plans in order to avoid unforeseen problems.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.