Retirement brings financial and emotional changes that must be managed in a way that benefits you and your loved ones. Your financial strategies at this stage of life may include downsizing. However, there are several pros and cons of taking this significant step that you should keep in mind.
Large homes and luxurious cars can serve as status symbols, but you should avoid them if it means sacrificing your financial security. Downsizing in your retirement can enable you to enjoy the decades ahead with less worry and pursue a wide range of financial opportunities.
Pros of Downsizing
Retirement typically calls for a dramatic reform and reduction in your budget. It is a time to look pragmatically at your spending and correct any problems you might find.
The circumstances that called for a seven-passenger vehicle or five-bedroom house have likely changed. Your children have grown and moved into their own homes, and your seven-passenger SUV may only be full when your entire family gathers to go on vacation.
The benefits of downsizing your home, car and other aspects of your life are not only financial in nature. Some parents find it sad to look at empty bedrooms every day. A large dining room may now only seat one or two people on a regular basis.
Downsizing to retire early has emotional benefits. It can enable you to let go of past frustrations, get rid of unproductive habits and start a new foundation to shape your goals.
Downsizing after retirement also offers several financial benefits, including:
- Avoiding large property taxes.
- Benefitting from equity in your home.
- Spending less on expensive car parts and maintenance.
- Lowering your fuel costs.
- Paying less for vehicle insurance.
- Reducing your landscaping bill.
- Lowering annual costs on house maintenance.
Downsizing also offers you a number of physical benefits. Retirees can spend more time and money pursuing physical activities like hiking, swimming and other outdoor activities.
It also offers physical benefits if your health has declined. The home that you now own may require you to climb long flights of stairs to reach your bedroom. Downsizing may help you to:
- Enjoy a home that makes life easier if you use a mobility device.
- Enjoy a range of safety features that would have been difficult to implement in your previous home.
- Install security cameras at all entrances at a lower cost.
Cons of Downsizing
Downsizing your home after retirement can sometimes affect you in negative ways. While it is generally a positive step forward, it can be accompanied by emotions like grief, as you let go of your possessions, a community you were part of and a lifestyle that you enjoyed for many years.
As you move or sell your vehicles, you will have documents to sign and have meetings with different people. You will have different deadlines. You may unpack items that trigger a host of memories.
Your family and friends can help you through this transition. Find a trusted friend to talk with honestly about how you feel. If you are feeling overwhelmed for a long time, consider talking with your primary care provider, a member of the clergy or a therapist.
Some of the emotional cons associated with downsizing include:
- A sense of homesickness.
Other potential cons of downsizing include:
- Loss of treasured material things.
- Adjusting to a new climate.
- Living with smaller bedrooms and living areas.
Maximizing Your Home After Retirement
If you want to know how to downsize your home for retirement, it may help to have a talk with your financial advisor. If you no longer have a mortgage on your residence, your home may be your biggest asset.
Ensure that you are completely at peace with your decisions before you take action. Plan for all foreseeable possibilities. There are several steps that cannot be undone once you have taken them.
Should you downsize your home by selling it now?
If you want a comfortable life after retirement, you may want to sell your home and move into a smaller property or rental. This can also be necessary if you think that house prices will fall in the long term in your neighborhood.
The location of your home may also encourage you to sell. It may be far from hospitals or the type of specialized medical treatment that you will need.
If you sell your home now, you may be able to purchase an annuity that will give you monthly payments for the rest of your life. The principal may also be placed in trust for your children or grandchildren. You can even start a business.
Smart Downsizing Idea: Renovating for Rentals
Selling your home may not always be the best option. If house prices are moving up in your current neighborhood, you may profit more by waiting to sell.
You may rent the property as it is while you live in a smaller residence and profit from the difference. Where the relevant laws allow it, you can renovate a building so you can rent sections to several different people simultaneously in order to multiply your income.
Reduce Your Expenses Thoroughly
You may initially pay the most attention to reducing spending on your house and car, but there are other aspects of your life to consider, such as:
- Expensive vacations.
- Eating out.
- Costly salon appointments.
- Expensive club fees.
You can make adjustments to your annual vacation by staying at cheaper inns instead of hotels, or going to a local campground instead of flying to another state. Treat yourself to spa treatments at home, and eat out at places that serve delicious food for less.
So, is downsizing a good idea? In most situations, it is. It allows you to enjoy greater financial stability and more flexibility than keeping everything in your life as it was before retirement. Downsizing earlier in retirement is likely to be easier than doing so later on, so if you are retiring, the best time to make that change is now.