Smart Move To Downsize In Retirement

Why 42% of Americans Plan to Downsize in Retirement

Updated on Jul 27 2018


More than four in 10 Americans intend to downsize after retiring, according to data from a recent Ameritrade survey. Downsizing can be a smart financial move for many seniors as the move will enable them to save on housing costs while stretching the life of their savings.

Learn why moving to a smaller home may be right for you:

Why Downsizing in Retirement Can Save You Money

Even if you own your home outright by the time you retire, downsizing to a smaller space can still save you not only money but also maintenance headaches. Remember, other than healthcare, housing will likely be your single greatest monthly expense as a senior, so reducing costs could help you preserve your nest egg.

Here are a few ways a smaller home might be in your best interest:

  1. A smaller space costs less money to heat and cool than a larger one. If you’re used to spending $250 to $350 a month on utilities for a 2,000+-square-foot home, downsizing to 1,000 square feet home will most likely reduce your bill significantly.

  2. Maintaining a smaller space is easier and more cost-effective than maintaining a larger one. For example, the typical homeowner spends between one to four percent of his or her property’s value on upkeep per year. Maintenance costs will most likely shrink substantially if you downsize; especially to a newer house that requires less upkeep.

  3. Property taxes on a smaller home are generally substantially less if you plan to stay in the same area. Basically, property taxes are a function of your home’s value times your local tax rate, so if you’re dealing with a space that’s smaller and therefore less valuable, you’ll pay less. Also, since property taxes are no longer fully deductible as they’re part of the SALT deduction, which was once unlimited but is now capped at $10,000; lowering that bill makes sense on multiple levels (especially if you’re living in a state whose property taxes are much higher than average).

  4. Your adult children will most likely have moved out by the time you retire, which means you don’t need as large of space; which is not only more expensive, but is also more difficult to maintain.

  5. A move to a more affordable location in addition to a smaller home will help you save all-around as you’ll have a less expensive retirement home in a geographical location where cost is living is less expensive; enabling you to stretch your retirement budget further.

An Alternative to Downsizing: Rent Out Room/s for Extra Income

If you’re unable or unwilling to downsize in retirement, another smart move is to turn your property into an income source to help offset some of the costs. Renting out a portion of your home on a full-time basis if you have a separate finished area, like a basement or garage will give you a steady stream of extra income each month.

If you don’t want a permanent tenant, you might consider a seasonal tenant as it works with your schedule. For example, you might rent rooms or your house, if you want to stay with friends or family for small periods of time, as a vacation rental through VRBO or Airbnb. This is a great option if you live near a major attraction or in a desired location, and are willing to have guests. Also, if you rent out your home for 14 days or less during a given year, you can collect that rental income tax-free.

A Retirement Community Provides Community and Socialization

As we age, our social options change. A retirement community is a great step for seniors who need more socialization and less residence upkeep. Today, there are many state-of-the-art retirement communities that offer wonderful entertainment, fitness and socialization options.

Here are a few of the reasons downsizing to a retirement community might make the most sense:

  1. Physical Activity and Fitness: Many retirement communities offer gym equipment, exercise classes and even personal trainers to help with physical therapy and elder fitness.

  2. Social Activity: Living at home can be isolating, especially if you lives alone. Retirement can be a difficult time to maintain social relationships, and assisted living offers socialization through planned activities and outings, such as field trips, dancing and cultural events. Daily living in the common areas also offers fun and socialization for seniors.

  3. Intellectual Stimulation: Retirement communities can offer many opportunities for learning, such as computer classes, book clubs, art classes, gardening and more. Some communities are even located near a college so that residents can take advantage of nearby campus resources, including courses and cultural offerings.

Every retirement community is slightly different, so if you’re considering a move to one make sure to do your homework. Visit the options in the area in which you plan to move and find the one that feels like the best fit for your interests and lifestyle.

Is Downsizing Right for You?

Only you can determine whether downsizing makes sense for your unique situation. Downsizing could alleviate some financial stress when you’re older; especially if your retirement savings isn’t as robust as you’d like. And while it may be tough to say ‘goodbye’ to a home you love, a property that doesn’t strain your budget might make the most sense for your future memories.

There is ‘a time and a place’ for every stage of life and it’s important to keep in mind that a new home might be your smartest, and most affordable, option for your golden years. An expert financial advisor can help you assess whether downsizing might be right for you.


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