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."


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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 5:35AM

Downsizing was the best thing I ever did !  We dumped that mini-Taj Mahal along with the gardner, pool guy and high utility and insurance costs.  Bought a very nice but much smaller two bedroom home and love it.  Still have a small yard to piddle in and room for visiting family but the costs came down to 30% of what they were.  Our only regret is that we didn't do this years ago ! 


I tied the condo thing years ago and it was a big mistake. HOA fees and idiot association leaders ruin the whole concept. Buy a house or stay in an apartment, that's my suggestion.


As Americans who have to much, too big - it's time we ALL thought of living smaller.  Doing it for retirement makes a lot of sense. Think of it as freeing, not limiting.  Do you really want to clean that third bedroom for the kids that only visit once a year?  3 bathrooms?  Not me.  And neither of us wants (nor are able)  to do all the yard work year-around that we throughly enjoyed when we were younger.

But think and talk about it way in advance - so that you pick the right place, the right housing.  We did it 6 years ago but had been planning it for over 10.  You can pull the equity out (if you wait for the right time to sell) and use it to build retirement savings (if you don't have enough).  If you buy smaller and something with easier maintenance, you can "home swayp more easily and travel a lot for little extra money, particularly if you live in a larger city or one that has tourist draw. 

Mostly, having only one bedroom and one bath (but lots of living space) we entertain, travel, pursue our hobbies, and enjoy our friends and family - not our possessions! 

Jan 19, 2013 5:19AM

We have just retired and are thinking of downsizing but taking it slow.  My husbands parents are in their 80's and we just moved them into assisted living.  My biggest recommendation is to NOT GET A REVERSE MORTGAGE IF POSSIBLE.  His parents got one about 10 years ago for their condo.  First of all it is a FORECLOSURE and handled like one.  You are really just taking all of your money out of your house, trust me with the fees they charge monthly you will never get a cent back if you want to move elsewhere.  If your home has stairs it probably is not going to work for you later in life.  We had a terrible time getting the bank to take over the reverse mortgage. We also had to keep paying those HOA fees & insurance & utilities until the bank got good and ready to take over the house.  The whole process took almost a year.   It was not near as simple as advertised.  Now his parents do not have the money selling their home would have given them to help take care of them in their later years.  If you decide to get a reverse mortgage be sure you get long term heath care to help with your bills in a nursing home or assisted living facility should you need to move into one.   To recap if you are thinking of a reverse mortgage, hopefully you have a ranch you can live in with in- home care and do not have HOA fees that could break you.  Unless you truely can stay there until you die it will not be worth it. 

Jan 19, 2013 5:11AM
Some of these comments about grown children coming to visit and having to stay in hotels, or saying you have no time to babsit and spend time with grandchildren are horrifying!  What happens when those of you that are married lose a spouse?  Are you all of a sudden going to want your kids and grandkids to come visit?  Well guess what, it's too late because you established your boundaries too early.  My parents, (Thank God for them and their planning) retired in a house a little larger than we had growing up, and paid cash for it.  They have no concerns about every losing their home.  And all of our families can visit, stay for holidays, weekends, etc.  We live within an hour, and my kids LOVE spending time with their grandparents, it is a truly special relationship, and they are 14 & 17.  I feel so fortunate that my kids have the opportunity to spend quality time with their grandparents, and it's not from a visiting hotel room, or quick dinner.  I pray that I will be able to do the same.  Families don't stop at retirement, that is the time you should be able to enjoy it the most.  Don't "space them out" by downsizing too much in retirement, or you may be enjoying your retirement on your own!
Jan 19, 2013 4:50AM

I wish I hadn't  given up my home for a condo.  The drama of a condo, the stupid HOA board decisions has been painful.  If I had known I would've rethought how to make my home downsizeable. 

Jan 19, 2013 4:43AM
Downsizing makes sense if you live in a state where taxes are the piggy bank of the politicians and their unions.   Let someone else pay the "STUPIDITY TAX" you know the one you pay to live on your own property.   The taxes in Upstate New York run between 5 to 9% of the home value.  Imagine pay the home price every 15 years or so with no end in sight.. 
Jan 19, 2013 4:39AM
We planned ahead for my husband retirement and were our retirement location would be. We have a simple life over 1800 sq. ft. manufactor home in the Az desert on a little over acre of land. Plenty of space for the both of us we do things together and have our own space when we want to be alone . We have several grown children and we told them several years ago that once we reach retirement age and if we are able to enjoy some of it then they are grown adults and can handle their own life we raise then and worked hard all our life to get to this point of retirement. We do not need or want to downsize as we need our own space at times and we do not babysit grandkids as we like the freedom of the spare of the moment to up and go and do what we earned the right to do.........We do not care if we have to grade the yard or rake it or water a cactus or two ilt is what we decided to make our retirement living life style....
Jan 19, 2013 4:09AM
This article does make some interesting points. We sold a 3 story town home and moved into a retirement condo. The pluses are; no yard work, no imminent repairs, good neighbors, snow removal, gated community, pool, clubhouse and easy cleanup and maintenance. Downside is escalating condo fees. Make sure that you have the finances to pay your new residence off. It's also good if you can devote some time to the betterment of the community. Was a building captain and on the Board of Directors.
Jan 19, 2013 4:05AM

If you can, downsizing is a big help.  Get rid of the costly maintenance charges for everything.  Yes, we gave up the pool and the large acreage.  You can still find very safe, affordable housing in a metro area, you just gotta choose where you want to be.  We moved to Las Vegas.  Why?  We're not gamblers.  Low taxes, affordable housing and the goods and services you want are close at hand.  Not everyone lives in a casino or on "The Strip".  We actually have all the professional and journeyman services here, good shopping and enough recreational opportunities to keep you busy if you choose to be.  Yes, its hot in the summer, that's why you have air conditioning and your heating bills are pretty low.  Where ever you want to live, check it out thoroughly first to make sure its a fit.  Does it have what you want?  If you like to travel, does the place have a good airport?  Make yourself happy cuz no one else is going to, they're all busy with their lives.

Jan 19, 2013 3:47AM
Ahoy' We retired 1987 at 55 and down sized to a 38' NU WA 5th wheel with washer and dryer and started wandering all four corners of this beautiful USA & Canada enjoying the best weather and our grand kids setting around a campfire. This is the American dream or as good as it gets.
Jan 1, 2013 10:46AM
I got  A BUNCH of thumbs down--oh, well. We DID NOT KNOW we were moving into the middle of the 'ghetto/felony flats'.  When I moved into my custom home the only folks on the block were oour 80 y/o neighbor and the duplex next door had a wife (dying of cancer) and her kids.
Less than a decade later, Section 8 renters abound; they ALL have lowered cars with thump, THUMMP, T-_HH-U-M-P ing subwoofers.
Things get stolen out of the fenced yard--gas gets syphoned from the gas tank(s) three times.

We can't afford to move/downsize; 

thanks to all you KLODS who gave me thumbs down. Ever heard  of empathy.?
Like I said; the place was semi-deserted when we moved in. Now , we're in HELL.
Dec 29, 2012 8:27PM
I owned a 2 bedroom townhouse a few years ago.  I had soime serious health issues and was forced to enter a nursing home for a year,which drained all my finances leaving me with very little money.  When I finally got out of the nursing home I put my cpndo on the market and moved into an elderly housing facility.  I now rent a 1 bedroom apartment in this facility and am very happy. Although I pay more in rent then what I was paying for my mortgage it is still ,much cheaper to live here than it was in my condo. I think moving here was a good move for me since I now have muich more spending money than I ever did before.
Dec 29, 2012 8:20PM
We sold our 3 floor 4800 sq ft home in 2007 and rented a condo to see how we liked that style of living. After finding out we still wanted a home we had a 1600 sq ft rambler home built with a basement with 1 master suite on the main floor. The floor plan is open with a kitchen, family and living room that blends together for optimal entertaining.We will finish the basement with 2 bedrooms and another kitchen and family room and the rest will be storage. The savings in utilities, landscaping and cleaning is unbelievable and we are able to maintain the place by ourselves. Retirment is 10+ years away but we are excited not to be responsible for all the extra square footage and landscaping. We baby boomers for some reason felt we needed mcmansions and mansions to raise our families in and in retrospect it wasn't necessary because then as we age we have to off load the home. We're happy and do not miss the bigger home.
Dec 29, 2012 6:53PM

Even if you are not looking for less square footage, it's wise to move into a single story home if at all possible. As we age, it can be dangerous to go up and down the stairs on a daily basis as well as painful. I'm not only a senior citizen , at age 65, I'm also a Realtor and over the past 2 years I'm selling more and more two-story homes owned by baby boomers who can no longer take the stairs. It's a given that a single story reduces utilities and is easier to maintain. I've also had clients who bought a smaller home and then realized they were too cramped so it's important to think about that before downsizing to something half the size of what you are currently living in.

Dec 29, 2012 6:20PM

****tt! This article is tough to swallow - if you have a huge home that you can't take care of anymore then you have to hire someone to take care if it for you - THAT COSTS EVEN MORE MONEY TERESA MEARS!

Unless you have that big home paid off and have some reserve money set aside to have a landscaper and cleaning service, then you're going to have a tough time up-keeping that home. 

Retirement for 99% of the population means LESS INCOME than when they were working - A Lot Less! That big home can become both a physical and financial burden real quick. Get a smart Real Estate agent and decide if you want to live in the same area or move someplace cheaper. Smaller is essential when you approach retirement. You want your retirement years to be SIMPLE:-) Not complicated. I have seen this with my parents. They had to make some tough choices and some financial concessions, but hey, they are at a place in their lives where simple is the key.   

Dec 29, 2012 5:58PM
I agree with the person who wrote a commet before me. We (my husband and I) don't happe to have any kids or grandkids (thank God!) but my husband has lived where we are going to and I have spent three summers there and on whole spring so we basically know our road ahead such as prices, amenities and etc.  Our house here is a small fixer upper that we fixed up.  We didn't have to do much as the people who lived in it before us, took good care of it. So we are not downsizing.  We are upsizing as our next place will be new.
Dec 29, 2012 5:13PM
Soylent Green........Reality from an old movie.
Dec 29, 2012 4:07PM
i downsized i have no no utility payments & no payments no upkeep how could it be any better
Dec 29, 2012 2:31PM
A single story home is also very wise for older citizens. We have a single story for 10 years now and I woul dnot go to a two story ever again. My concern is the mortgage payment and staying in a NON tropical climate. I am in California and it is not tropical enough for me. If I move to a tropcial climate country it will be to rent only. I will consider renting my California home unless that becomes too inconvenient.

Check out my dream plan-----no stairs!
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