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.

 

 
150Comments
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Check out my dream plan-----no stairs!
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I would like to downsize as I hate cleaning, so would like something more compact and user friendly with a fireplace(upstairs) between the kitchen and livingroom.  I also want a sunroom for my computer work .    And I would like a small yard for flowers and a raised bed for tomatoes.  Guess what!  I found it -----A manufactured home!  Now, I must have an estate sale, get rid of 90% of everything, and work toward this.  Is my husband enthusiastic----in a word NO!  Not yet----but I am not giving up!
Dec 29, 2012 12:59PM
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It is not a question with me personally about downsizing living space, home, or many other things.  It just makes good sense.  Many older people I have seen through the years never made the commitment to downsize in their later years, and they are stuck with homes, outlying buildings, yards or gardens that are far too much for them to care for. Not just looking at this about a financial or affordability situation, they are too tired or no longer physically able to take care of what they have.  Or they do not want to pay someone to do the yard or maintenance work property always needs. Why do they want it? A lot is sentimentality and too much attachment to physical things. Relationships should be a premium instead. I am not there yet...but I want less when I do arrive there, and have more time to spend with doing what the Almighty would have me do with the people He wants me with.
Dec 29, 2012 12:20PM
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Back in 1998 when our property taxes were more then our mortgage I knew it was time to MOVE-ON, we moved from a 3 bedroom brick to a 3 bedroom Mobile Home on 35 acres of wooded pines....LOVE IT and have never looked back.......retirement is HEAVEN on earth!!!!
Dec 29, 2012 11:20AM
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It is tempting to downsize moving into a retrement community.  Instead of $11,000.00 taxes yearly we would pay $3,000.00.  Husband enjoys where we are for the past 40 years and does not want t move.  So we stay.
Dec 29, 2012 10:07AM
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Many Americans are paying big time for committing real estate gluttony.

 

EOS.

Dec 29, 2012 10:00AM
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no2dramaqueenanne you sound like a bitter nasty person and sense you are reading this you must care about others stories. To all  working on your retirement plans the best of luck and may all your decisions turn out to be good.
Dec 29, 2012 9:28AM
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I really would like a smaller place BUT I've got stuff (electronics/speakers, hobby stuff) that I don't want to put in storage. Here's why:
I put lots of stuff in our 60' x 90' steel building out in Oro Grande and guess what?
Some low-life's broke thru the 4' x 8' OSB wall (backing their truck into it!?!) and took $24,500 !!!!
I'm 62 y/o and will NEVER be able to replace the 'hobby stuff' like antique ray-guns, 4 channel stereo / receivers, microphones, speakers, tools, compressors, generators, etc.)
I had never been burgled before and NOW we have the property completely fenced, double rows of barb wire, razor wire and alarms in the triple  wide mobile home and the steel building.
My neighbor only lives 1/8 of a mile away patrols the property daily. 
((We also have 2x4's with nails sticking up so any future burglars will leave with 4 FLAT TIRES.))
I wish I'd just left everything BE (the way it was). Now, all that property is gone.
So SO: retired folks think twice before moving your precious heirlooms hobbies etc to a storage area. Keep your current house pay it off and enjoy the positive cash flow.
Amen, Jesus. I'm ready.
Dec 29, 2012 9:28AM
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I really would like a smaller place BUT I've got stuff (electronics/speakers, hobby stuff) that I don't want to put in storage. Here's why:
I put lots of stuff in our 60' x 90' steel building out in Oro Grande and guess what?
Some low-life's broke thru the 4' x 8' OSB wall (backing their truck into it!?!) and took $24,500 !!!!
I'm 62 y/o and will NEVER be able to replace the 'hobby stuff' like antique ray-guns, 4 channel stereo / receivers, microphones, speakers, tools, compressors, generators, etc.)
I had never been burgled before and NOW we have the property completely fenced, double rows of barb wire, razor wire and alarms in the triple  wide mobile home and the steel building.
My neighbor only lives 1/8 of a mile away patrols the property daily. 
((We also have 2x4's with nails sticking up so any future burglars will leave with 4 FLAT TIRES.))
I wish I'd just left everything BE (the way it was). Now, all that property is gone.
So SO: retired folks think twice before moving your precious heirlooms hobbies etc to a storage area. Keep your current house pay it off and enjoy the positive cash flow.
Amen, Jesus. I'm ready.
Dec 29, 2012 7:39AM
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NBC, the media, and the current administration want all retirees dead and gone and out of the system.  They want a society where if they don't find any value in your life then you just don't need to be here.  And when you are dead and gone they want to grab everything you had in life.  But hey, first move to some area where they can shuffle more of your savings to people who don't have as much... if you are going to linger around anyhow.
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I have all of you beat..I paid cash for a forecloser in Florida.Because of my 100% disability from the goverment..I don't have to pay property taxes and I don't have a house payment  I don't buy oil..I don't pay IRS taxes..Life is finally good..
Dec 29, 2012 6:11AM
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Really MSN? My husband and I plan on putting our 2800sq foot, 4 bedroom, 1.5acre house on the market and buy a smaller home, smaller property in the same vicinity of where we live.  The taxes will be lower, but more importantly with less house, the maintainance and operational costs will be significantly reduced. Although we won't make the profit we dreamed about when we bought it, we'll still have a nice chunk of change and it's all relative, the smaller home we buy won't cost as much either. I have seen many relatives who have retired to their dream, only to want to move back in a few years due to family, failing health, doctors, etc. but can't because they sank all their money into a house that NOW isn't worth anything near what they paid and unfortunately, can't afford to sell and move back. But that's just my story! To each their own and doing what makes you happy is most important! Just have a plan!
Dec 29, 2012 4:46AM
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We had a forced downsize after my husband had an injury.  We went from our antique home to a mobile home with about 100 years difference in age.  We've been here for 3 years now and it is quieter than our old home because the street became more popular over the years.  Where we are now we have walking paths, and are within walking distance to the malls several grocery stores and such.  I've never gotten comfortable though, have rearanged things here repeatedly,as I can't get used to not having 5walled rooms which s one reason we loved the home so much.  I think though we're contented here, the only place we'd really have to drive to is the rec centers or the lakes.  Our town has so many parks connected by walk paths, and really it is a nice place to grow up, return to and grow old in.   It is also  way to leave from for travels and vacations.  I could spend lots on a place to live, or have a comfortable home that we can use as a place to come to when not being nomads.  It's easily cheaper, withstood many storms and the neighbors are nice.So we downsized in the right town and the rght place.
Dec 29, 2012 4:07AM
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We wanted to downsize but soon found out that to build a house half the size we live in would cost more without as many "upgrades" as what we were living in now. We decided to stay.
Dec 29, 2012 3:18AM
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HA! We sold our big home where we raised our daughter, sent to college, married her and then retired to the beach in a Condo and have never been happier. Tax free State, low utilities, plenty of extra money to travel and spoil our grandkids! NO home maintenance, and a beautiful club house and pool to entertain in!...Life is Grand...
Dec 29, 2012 1:20AM
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Each to their own for sure. We raised four kids, all college graduates with their own homes and good incomes. We had a three bedroom 2200 square foot home that really shrank over the years. With a big family, loads of friends, entertaining and visitors we invite to stay from one week to a month, we decided to knock down our old home and build a 3960 square foot home with 5 bedrooms and 4 bathrooms on the same 16000 square foot property. Fortunately, we can still pay the bills, take vacations, give to charities and have a few dollars in investments. Being in our late 60's, we know we can't bring it with us and as far as taxes, we invested in a "dynasty" trust.
Dec 29, 2012 12:10AM
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We went from a   2800 sq ft home , which  was taking most of our monthy income to pay for the utilities to a one huge room , Big enough to section off as 3 rooms , LR, BR,Kitchen , with all utilities for only $ 400 a month after all other Bills now we have around $1500 a month left over with our incomes, so with only 2 people downsizing  it does help, a person would be surprised at what they can do without .

Dec 24, 2012 9:51AM
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Downsizing has never work!  Out of all the working class age people in the USA.  Where and What should you do with them.  Human nature is this survival is the fittiest.  If there is no place for them to work they will rob, steal, kill.  What are you going to do then, we are already headed in this direction. America has more people locked-up in jails, penetinaries, prison than any nation in the free world.  Is this the way, we want to live.
Dec 24, 2012 9:45AM
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Don't buy bigger than you need. Start small and stay small till you can mostly pay off your mortgage loan faster than the 15 yrs. That's counting on that you did not buy a home that you are under water in. We all have dreams but stay realistic. I don't count on driving a "nice car" for a few years. 1st my family's security and home for the future. Then my bling-bling. I will be "Blinging" Will you?
Dec 24, 2012 9:42AM
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Downsize as fast as you can, the hollywood elite have been doing it for years now!

Downsize now and be tmad hatter Obama taxs that are coming on any and all forms of profit making, Obama has to keep the undr funed social prgrams going and hes doing it by attacking al of us that work,save and plan ahead!

Listening to the money experts will leave you worse off than the 2008 market fall out.

 

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