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