Couples often start their married life in a tiny starter home, upgrade to a slightly larger home to raise a few kids, and then stay in that hopefully mortgage-free home in retirement. But many retirees no longer need a several bedroom home. And even if your spacious home is paid off by the time you retire, which is increasingly unlikely, your costs for maintenance and utilities are inherently higher.
This is why downsizing before or during retirement can be a good move for many retirees. If you think downsizing might improve your retirement finances, here are some tips to reap the biggest benefits:
1. Look at your total homeownership costs. If the point of downsizing is to save money, you’re going to have to run the numbers. Sit down and figure out what your current home costs you, including the mortgage, taxes, insurance, utilities, maintenance and other costs. Then, look at some scenarios for a smaller house to see how much you might save.
While you’re running the numbers, be sure to account for where you plan to buy your smaller home. Downsizing within the same neighborhood is likely to save you money. But moving from an affordable area to a city center or a more expensive state could actually cost you more.
2. Consider non-financial costs. There’s an emotional cost to parting with a place you’ve called home for decades, especially if you have plenty of good memories tied to that place. And if you’re considering moving away, say to a sunnier climate, think about the relational costs of being further from family and established friendships. How much you will save by downsizing may outweigh these emotional costs, but it’s important to consider them.