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.
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.
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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!
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.
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.
Retirement can be like cancer treatment. You know you need to do something or you will die but many ignore the symptoms until it is too late. If you are married to someone who controls you, your finances and your decision-making abilities then forget about retirement because you are going to die before you ever see it. Retirement is for those who realize there is more to life than paying bills or slaving away in an institution where 5 seconds after you leave you are replaced by a younger version of you earning less money. Grow some hair on your balls or nipples and get on with it. If your new retirement location can be used as a base camp or springboard for your dreams then you have found it. When I look back and think about the many friends who didn't make it -who died in their 20s, 30s, 40s, 50s- then I am motivated to stop the clock and start enjoying life at my pace, not someone else's. Many singles have found security and happiness living aboard a boat in a secure harbor wih security, cable, water and electricity. Others choose condos. Some can't part with their old ways and want a big house to maintain. Just do it.
The world's best stock for the long term, Walt Disney, is located in multiple locations in Florida along with many cruise options so when you compare all the states, the state of Florida appears to be the best for retirement. Interest rates are very low and many properties have decreased in value to a point where they are absolute bargains -even for waterfront properties. Everyone should practice eliminating their material possessions until they have only what they need then basing their housing size choices on that conclusion. In Florida, you can easily afford to live on a golf course, near fishing or near shopping. It can be a home, a condo or a boat. Retirement wlll never be more affordable than it is now. If you have a few 30-somethings or 40-somethings still living with you then kick that dead weight out and move now. Can't afford to retire? You should sell it all and move to Florida anyway. Better to live each day in paradise. Many couples simply refuse to discuss finances and retire by default, usually too late to enjoy anything due to old age and/or poor health. Don't let this happen to you. Get down there now and start looking.
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.
****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.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.
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