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.


Dec 24, 2012 9:32AM

the sad part is most of those ppl. who buy homes are not just a place to live in

,..most ppl. wanted to keep up with the  'jones'  they also wantedt to show off,and

do some are no longer a 'good investment' homes to live in

 period.  .but it those used cars salesmen like they call themselves 'realtors'

the real estate agents are the ones who are creaing 'buy a home' hype

homes are NOT an investments.. think about it. your tax alone eat up ANY

Profit/s...with 0ver 9 million home remain unsold.. ANOTHER Real estate

blow up on the within your means.

Dec 24, 2012 9:23AM
I have considered downsizing, but when I think about the cost of selling my current home ( Paying a Realtor  to list and sell) and buying another home (Closing Cost), I wonder how long it will take to break even. At this point seems Cheaper to keeper.
Dec 24, 2012 9:00AM
Give me the countr,y my land is paid off, except for taxes. Under Obamo you are going to need it. Concrete does not grow anything but crime.
Dec 24, 2012 8:59AM
Moved out of our 2200 sq ft house into a 297 sq ft 5th wheel. You just need to learn how to down size. Our living quarters are now including an open floor plan of a patio and grass area. Have a small casita for washer and dryer, office equipment and storage. Most important, we're mobile! Get tired of where you are, go for a trip with your living quarters in tow.
Dec 24, 2012 8:50AM
Downsizing in any form never works...Just ask Verizon...They had about a dozen or so and always "Rehired" those they let go for more money...They call them contractors...Wink...Wink...

We moved from a 2480sq foot house in the city to a 1473sq foot house in the country PAID CASH and rent the other for a profit. The rent also covers the taxes (2500 a year) and the insurance. Compare taxes on the houses the smaller house the yearly taxes are $72. Gas $16 compared to $90, electric uner $200 compared to $500+ in peak months. We are not retired. We just never wanted to be homeless or not have a place to live. Country living beats city living, living below your means is what will help you retire!


Dec 24, 2012 8:33AM
I retired 3 yrs ago, the wife 2 yrs ago.  We had lived in Utah for almost 22 years and had enough of the 6 month long winters.  We then snowbirded the last two winters in Tucson, AZ.  After a two year long search for active adult communities, we sold our 3,000 sq. ft. Utah home and bought a 2,000 sq. ft. new construction home in Maricopa, AZ.  It paid dividends to have had the time to reseach and not make any hasty decisions.  Best advice is to rent where you think you might want to relocate to. 
Dec 24, 2012 7:45AM
Good Heavens....I'm not sure WHERE these people live, but I will tell you that when we get to the point of being able to move out of this apartment we are in and into a 3 bedroom home, it will be one of the best moves we will have made! And we won't be looking for anything that is humongous; just a simple 3 bedroom home with 1 or 2 bathrooms and a nice sized kitchen and living room; really, what more do you need?  I'll be a back yard gardener and will be putting in vermiculture beds for flowers and put in St Augustine grass so we won't have to mow...there are many ways to reduce costs; doe anot matter if you 'upsize' or 'downsize'; its all smart management of money and resources

Dec 24, 2012 7:33AM
I'm with sensible. I paid my house off 7 yrs. ago,  the day I bought it. This 2 bdrm. 1 bath, 1,200 sq. ft. house is plenty  big enough for me. There's plenty of room when my daughter comes & visits also. When I sell this house in about 4 yrs. & move into an apt. the proceeds from the sale will go into a interest barring account @ 4-5%. I already have one established. The interest from that account alone will pay for the rent in my new apartment. People should start learning there are many ways to let your money work for you. Get a good financial advisor.
Dec 24, 2012 7:12AM

and why are those people telling others how to live their lives.

what works for YOU it may not work for others.

and no 1 cares about your worthless story..

Dec 24, 2012 6:45AM
Downsizing! I mover from a 94-acre farm with a two-story house to a "mobile home" with 1.3 acres. Sucks weasles.
Dec 24, 2012 6:29AM
For those "I could've told you so," it was not by design but by default that you ended up in a better position. Had you had the money to upsize, back in the day, more than likely would have done so.  Now you think you're smarter since the market worked out for ya.... in a better position by default and not by design.  
Dec 24, 2012 5:28AM
Depends on your life style and hobbies. I have one whole (large) bedroom dedicated to office and crafts.  I love it!!  No more hustling to put everything away when company comes; just close the door.  When it takes more time to set up and clean up than working on your project, the project does not get done.  Since I work full time, catching 15 to 20 minutes every night is actually possible when I don't have to pull all the stuff out to work on it.  Guess I'm not ready to downsize.
Dec 24, 2012 5:26AM
We downsized and I prefer my new lifestyle. No more lawn to mow, flower beds to weed, and rooms to clean. It is cheaper to insure less space, heat and cool less space and property taxes are less. Now I spend mt time reading at the community pool or boating. The kids stay in our extra room when they visit or a hotel. We love the freedom.
Dec 24, 2012 4:59AM
One of the problems IS NOT needing to downsize but not being overly impresse with opulance in the first place. When my wife and I moved and were looking for this home we saw young couples shopping 3000 square foot homes with bathrooms that made me wonder what they do in THEIR bathrooms that I don't do.  When we were kids four and five kid families lived in three bedroom homes that were 50 years old. Now everyone wants a NEW home with enough room to hold the county fair.
Dec 24, 2012 3:06AM

Once again another article proving that you don't need to know much about something to write for MS/NBC. 


Man this site stinks.

Dec 24, 2012 2:20AM
Downsizing, about paying off your home before you retire. We have no debt... only paying for food, clothing, utilities, and insurance. We never "wasted" the money buying a huge home; our home is big enough to suite our needs. You folks must spend too much time watching HGTV or something like it. 
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