What To Do When Downsizing Isn't the Answer

Many pre-retirees look at downsizing as a kind of miracle solution to their financial and lifestyle woes. In some ways, choosing to downsize your living space before you retire can be a positive change of pace - financially and personally. However, depending on your situation, downsizing can come with some drawbacks. It isn’t always the solution for everyone - and you may be asking yourself: If downsizing isn’t the answer I’m looking for, how can I cut costs in retirement?

Benefits of Downsizing Before Retirement

It’s no wonder that so many pre-retirees look to downsize before they retire - there are a number of financial and personal benefits to limiting your housing situation. Financially, you may be able to reduce your mortgage payment or eliminate it altogether if you downsize significantly and are able to purchase your new home outright. 

Downsizing may also mean fewer ongoing maintenance costs that come with keeping up your home. Additionally, if you choose to downsize before retirement, you may be buying yourself a few years to ramp up your retirement savings before taking the leap, by using funds that were being put toward your old mortgage each month. 

Downsizing can also have several lifestyle benefits as you start to think about retiring. Not having as much house upkeep can free you up to pursue other goals - like travel, or spending more time with friends and family. Additionally, as you age, you may be less able to keep up with the maintenance that a larger home requires, and downsizing early can help you adjust before you hit that new phase of your life. 

What if Downsizing Isn’t the Answer?

Although downsizing in retirement can have many benefits, it’s not necessarily the answer for everyone. There are a few potential drawbacks, or situations where it doesn’t necessarily make sense to downsize. For example:

  1. If you already live in a smaller home, you may be unable to comfortably downsize anymore than you already have.
  2. If you have other responsibilities that require a larger home, like animals, or family members who share a living space with you, downsizing may not be the answer.
  3. If you stand to make a large profit from your home sale, and won’t need all of it to purchase your new, downsized home - there may be tax implications that you’ll face after the sale. Of course, there are some exclusions available to you, and this isn’t the case for every home sale, but it’s worth discussing with a CPA or financial planner.

You may also be opposed to selling your home for emotional and personal reasons. For many people, selling the family home where they’ve made so many memories can be challenging. If selling is going to cause you emotional pain, it may be worth exploring other options, as well.

Alternatives to Trim Your Budget & Build a Lifestyle You Love

You don’t have to downsize your home in retirement to cut costs and live a more carefree lifestyle. There are several alternatives to consider. These might include:

  1. Focusing on paying off your current mortgage before you retire. If you can eliminate any debt payments pre-retirement, your budget will be in significantly better shape than if you carry a mortgage or other debt into your years as a retiree.
  2. Cut other large, recurring costs. A good example is to take a closer look at your car payment. If it’s considerable, you might want to sell your car and buy a less expensive vehicle.
  3. Understand your health coverage. If you’re retiring before Medicare coverage kicks in, make sure to take time to shop around for affordable options. Even after you enroll in Medicare, double check to make sure you have any additional or supplemental coverage you need based on your unique health requirements.
  4. Consider ramping up your savings. If downsizing isn’t appealing to you, you might want to think about how you can ramp up your savings, or budget for future housing costs. For example, if you’re worried you’ll be unable to care for home maintenance for all or part of your retirement, make sure to work having house cleaning, repair, or yard work help into your budget - and save accordingly. You may also want to think about whether your home is going to be livable even if you struggle with stairs later on in life. If it’s not, you’ll need to budget and save for those home modifications, as well.

There are many ways to build a retirement lifestyle - and budget - that works for you. Downsizing is certainly an option, but it isn’t the only choice available to you. 

Are you ready to make a retirement plan? Get in touch with us today! We’d love to help you plan for a retirement you love.

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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