Downsizing in retirement may not save money

Conventional wisdom is that moving into a smaller home will cost less. But that's not always the case. It pays to crunch the numbers before you make any decisions.

By Teresa at MSN Real Estate Dec 19, 2012 3:22PM

Couple looking at computer (© Simon Potter/Cultura/Getty Images)The conventional wisdom says you can save money by downsizing to a smaller home in retirement.


That may not be true, Anne Tergesen writes in The Wall Street Journal. Sometimes downsizing may end up costing more.


"Don't make any broad assumptions that downsizing is going to save your retirement," Jeff Bogue, a certified financial planner in Wells, Maine, told The WSJ. "It may help your finances, but I've seen plenty of people who find that it doesn't pan out as they had thought."


Post continues below

One of the most painful aspects of the real estate bust, for those near retirement, was that a major asset they had hoped to sell – their home – lost considerable value, more than 50% in some of the hardest-hit cities. That means the downsizing calculation may not be nearly as profitable as they had thought.

Most retirees who downsize stay in the same general area. That means that many of their daily expenses stay the same. A retirement community that provides maintenance and recreation facilities may even end up costing more.

One piece of retirement advice has been that to truly downsize you should move to a part of the country where it’s cheaper to live – but making a mistake can be costly.


Joanne Abrahamian moved from New Jersey to Kanab, Utah, in 2008, then decided that the town was too remote and she missed the seasons. But the home that she bought for $295,000 is now worth only $195,000, The WSJ reported.

You may also find that a smaller home doesn’t suit your lifestyle as well as you thought it would. My aunt, who sold her three-bedroom family home and moved into an apartment after her children left home and her husband died, found that her place wasn’t large enough for the entertaining she had more time for in retirement. She ended up buying another three-bedroom home, behind her son’s home, at age 70 and is still there at 86.


A smaller home may also not be practical if your adult children need to move back in or if you need room for visiting children and grandchildren who come from afar and stay overnight.


If you do plan to downsize, do the math and make sure it’s really going to cost less – or that it’s going to give you the lifestyle you want at a cost you can still afford. Consider the cost of moving. Don’t buy in a new city until you have rented there for at least a year. Visiting on vacation doesn’t count.


Downsizing in retirement does still deliver a financial boost to some. WSJ reader Shirley Summers wrote:

Oh, please, I could barely get through the article. My husband and I sold our 3,000-square-foot home two years ago by finding someone who could take over the mortgage. We had enjoyed living there, had made lots of improvements but it was too big, too much of a burden for just the two of us to take care of after the children left home. We bought a 1,200-square-foot fixer-upper, totally gutted it and changed the floor plan to include only (horrors) ONE bedroom and ONE bathroom. The kids know where the hotels are in town. Every time I find something of theirs I take it to them. "Here this is yours. Take care of it. :) "I don't regret it one bit. We have more time, and more money to do other things. We also have lots less to clean, no grass (our other house had an acre and a half of lawn to cut and water) and much cheaper utilities.


Jan 19, 2013 12:40PM

ALL things considering , The best move would be to find the right place 20 years before you retire.

We have done that in Florida and have a place blocks from the beach ( Less taxes and insurance) and will always have room for our future family and friends. We bought a house with 1500 Sq Ft. and added  a big family room , extra room for exercise or whatever and always bought the best in materials and equipment so we never have to move. I retire in 15 months. A plan is so important.


Enjoy life .... It is short and fast  RFW

Jan 19, 2013 12:09PM
I down sized due to necessity. The demonrats lost 25% of my house value in Cleveland area! the stock market lost another 25% and I saved and invested since 1969!  Move out of high tax areas, yes it costs money, but you will make it up, look at Florida, Wyoming, Nevada, Texas, Oregon, Wash, they all have varying degrees  of no income tax, no sales tax, and low home costs. Look at Boise Id. Look at wherever there is no Demonrats, that is where the taxes are going skyrocketing! the dead beats will move there, they will move to NE, NY, MD, Ill. MInn.  get out!!!! 
Jan 19, 2013 11:27AM
I remember when we were house hunting, our agent kept showing us houses that were alot more than we wanted to spend. She would say"But you're approved for so much more, you can get a bigger house and more land." We had discussed what we wanted and how much we wanted to spend after we were approved.  Just because you get approved for more doesn't mean you should buy it. We are a family of 5 and wanted a 3 bed- bath, and a decent size backyard. We found a 1450 sqft home that only cost 93000. We snatched it up to the dismay of our realtor who thought we would be much happier in the 2500sqft home right down the road that cost double. We looked at buying a house in the long term. We wanted a payment we could afford if one of us lost our job. It's a house we can grow old in and entertain in and have pvernight guests. Besides, moving is a pain in the rump, and I never want to move again.
Jan 19, 2013 11:02AM

Downsizing for the retirees?


It could be one HUGE mistake--the housing market is unstable--why would anyone want mortgage payments until they are past 80 years old, buying another place?.  Most have their homes paid off, unless they have been dipping into their equity to live on--no room, no storage for meaningful things, retirement communities full of much older people.. Stay in your young neighborhood, with who you know---the grandkids cannot sleep overnight, no entertainment ability--and looking at each other on the sofa 24/7!---Claustrophic- Elevators to go outside, parking garages for your car, walking far to get there-No Condo, No Apt.; No retirement community for us!--usually they are very far out from the Urban areas.  This article was right on target.

Jan 19, 2013 10:51AM
We also downsized when the kids became adults and finished college.  Nothing too extreme but it worked for us.  We had a 3,000 sq. ft. home on 1/2 acre.  The gardening, heating and air conditioning bills were extreme.  We bought a 1,700 sq. ft. newer home with a smaller yard and we love it.  We made sure and bought a one story because we didn't want to have to worry about not being able to climb stairs as got older.  We have 3 bedrooms, which is perfect for office space and visitors, and our housing costs are much more manageable.
No plan fits everyone's budget or lifestyle, so make sure you do what's right for you and your family.  
Jan 19, 2013 10:44AM
My in-laws downsized because my father-in-law was a cheapskate.  Later on my mother-in-law deeply regretted letting go of their house.  I don't know if their savings was that much it's just that they thought it might save them money. I don't think they did their homework - she just let him rule the roost and they did what he wanted to do.  Now they are stuck in a small home where they can't have the whole family at once and in my estimation hardly big enough for the two of them.  Big mistake. 
Jan 19, 2013 9:20AM
Keep in mind people, that aging  doesn't stop. My parents bought a two story, but the house had stairs to get into on the outside, the heat bill  kept going up, and eventually one of you passes which leaves one with half an income to pay the $ taxes, heat bills, etc.  It is just a fact of life, that my parents should have purchased a one floor plan instead of a two, with stairs to get into it.  When Dad broke his hip, the home wasn't accessible any longer for him.

This is just the reality of aging and I am sure none of you want to here the above, but it is the truth.

Jan 19, 2013 9:11AM
We downsized, the family home that my sons grew up in, and went from currently $11,0000.00 a year in taxes and mortgage to a lot less $ wise.. Yes it is smaller, and they miss their memories and  I miss the  extra storage of their childhood home, but the savings is Big$.  We all are not able to stay in our family homes due to rising taxes so we have to sell, some stick it out to stay near their life long friends and families, who plan on selling as soon as they are able, and then you will be in your family home without your friends and famiies because they had to downsize or forced to.
Jan 19, 2013 8:55AM
I downsized in my 30's after I found my wife cheating, so sold the 4500 sq ft house and bought a condo on the beach. Of course I divorced her **** first.
Jan 19, 2013 8:49AM

I retired at age 50 in 2001.  First I downsized form apartment to 24 ft RV. Then, from RV to Toyota PU.

I travel seasonally, following the fish bite and the weather.  Sometimes enjoying city life, sometimes country quiet. I travel as lite as possible and rent furnished rooms or studio apts.  I'm a firm believer in LESS IS MORE in retirement. HAPPY TRAILS!!

Jan 19, 2013 8:29AM
I think the people who are so willing to downsize have lost something that is so sad and is part of the downfall of this country.  Tradition and roots.  My husbands parents built and lived in their home for over 40 years.  When they died, it was with great sadness but memorable enjoyment that we went through and distributed their things.  It helped all of us in our grieving process.  We live 2000 miles away and whenever we visit, even though it's been 10 years, we still take the "Nostalgic Drive" by my husbands childhood home.  The memories keep us grounded.  I expect the same when my mother who has lived in her home for almost 60 years goes.  We have created the same situation with our home.  Our kids will have to take us out of here "feet-first".  We sincerely hope the memories this place holds for them are the same sweet memories we have for our childhood homes.
Jan 19, 2013 7:31AM

we went from 3000 sq.ft. to 900 up to 900 down we  put in a new kit. new baths and paint. nice big yard witch we both enjoy,gardening sitting by our water feature and enjoying the water falls.We will be selling some in the future and getting a big rig and go see the good old USA can't wait.

Jan 19, 2013 7:03AM
I can't wait to downsize. I am sick and tired of trying to keep this house clean, an in-ground pool, cutting the grass, I feel like all I do is work. I am done with that.

1,600 to 1,800 sq feet is all we need.  We still want four bedrooms, bedrooms that are just big enough to fit a queen size bed.  My children won't need huge bedrooms to store all their little toys when they come to visit.

Jan 19, 2013 6:56AM
Whether to downsize is just as a unique and indivdual question as buying your first home. It has to fit your needs and circumstances. Some may find it beneficial, others may decide to stay where they are for all kinds of reasons. That's why I agree with the article to really sit down and make a list of pros and cons taking your unique situation in consideration. Just like a floorplan or size of a house, the decision to downsize is by no means a "one size fits all" topic.
Jan 19, 2013 6:55AM
Yeah .. and I'm going to take advice from MSN.  That will never happen.  Everyone's situation is different and special to them.  Make your own decisions.  And/Or get advice from a reliable source.  
Jan 19, 2013 6:55AM
We are thinking to move to CA from NC, as our kids want us to be near to them.  I am worried about the high price of rental or price of home... We can or may be able to take some substantial money out  of our savings and retirement. 
We can no make up our mind..give us some suggestions and sound advise what need to be done.
Thank u
Jan 19, 2013 6:03AM

Downsize to a Motorhome, it's a great life.

Jan 19, 2013 5:44AM
I'm with Shirley on this one...and her story is very similar to mine except we have 2 bedrooms and we also call the kids when we find their lost belongings.  They usually leave with a box after Sunday dinners.
Do not downsize your home sweet home, my husband retired four years ago, we both are enjoying living in our 3600 sq. ft. home, we like living in this big house, when my son come and visit us, we don't have to show him the hotel, during winter season we have plenty of space to walk around, not like condo, that suck, so we decided to stay in our home till we are 105 years old. 
Jan 19, 2013 5:36AM
My husband and I recently bought a 1306 ft home and don't regret it a bit. First of all as you get older you do not want to spend your time cleaning the big house nor all the yard maintenance that goes along with it. It is cheaper to heat and cool and because it is smaller you can actually afford to upgrade things within the home and it not cost a fortune. We also bought a newer home so we wouldn't have to think about major repairs for a while. Down side, when you buy into a newer community there tends to be a lot of kids and it is not very quiet. The quiet neighborhoods tend to have the big older homes in them. Nothing is perfect.
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