The kids have moved on, and it might be time for you and your spouse to downsize your home. Not only will you have a smaller house to clean, heat, and maintain, you should save money on the exchange… shouldn’t you?
Not necessarily. Downsizing takes some planning and is not always the best path. According to many social scientists, new retirees often decide to downsize, only to regret their decision later. This occurs for economic and/or emotional reasons, and many retirees attempt to reclaim much of what they once had. Others find downsizing a liberating new start to a new phase in life.
If you are thinking of downsizing, consider these issues before you proceed – and if you decide to do so, downsize optimally.
1. Choose the New Home Carefully – How many rooms do you need? Do you frequently entertain? Will you be hosting kids and grandkids? Do you and your spouse have any specific room needs, like a home theater, craft room, or mancave?
Remember that this home is meant to last long into retirement. Think about how your needs might change as you get older. Is there acreage or landscaping that will be hard to maintain? Are there a lot of stairs or difficult-to-open cabinetry? Features that may meet your needs now could be burdens in a decade or two.
Online tools can help you search for homes that meet your criteria, and give you the first estimate of what they cost. Start your search for the new home well before you put your current home on the market.
2. Assess Costs Realistically – It is human nature to overestimate what you will receive for your house and underestimate what you will have to pay for a new one. You should therefore get independent pricing opinions from multiple realtors, or have your home appraised. As you search for your downsized home, use online sites like Zillow to find out what similar homes have sold for recently.
When doing your calculations, don’t forget about closing costs, which will be around 2-5% of the price of your new home, and the commission you will pay for selling your old home, which should be around 5% of the price of your old home.
Once you have a realistic estimate of what you will clear, you can assess the economic effect of your plans. You may still decide to downsize even if there is no profit on the exchange, but at least you will go into it without illusions.
3. Buy and Sell Simultaneously If You Can – We know that simultaneously buying and selling a house is quite challenging. However, if the real estate market in your area is not on fire, you might be able to make the purchase of a new home contingent on the sale of your old one. Alternatively, consider whether you can afford to buy the new home before selling your old one – or if you are willing to roll the dice and sell first, renting in the interim.
4. Verify the Location – If you are moving down the street, this isn’t much of an issue – but if you are moving a significant distance away, consider the different aspects of life there and what is important to you – everything from taxes to lifestyle options to weather to crime statistics to medical access. Also, consider how these characteristics might fit ten-to-twenty years from now, as well as today.
5. Get Rid of Things – Not everything will fit in your new house, and you will be amazed at how much you have collected over time. You and your spouse will have to make some hard decisions on what to save, and the two of you probably differ on what has sentimental value. Expect to compromise.
Meanwhile, do not downsize your house just to spend a chunk of your savings on a storage facility. Offer the unwanted items to your kids, sell them on consignment, have a yard sale, give them to charitable organizations… just remember that they need to go. If you cannot handle this step emotionally, do not downsize. You don’t want to be profiled in an upcoming episode of A&E’s Hoarders.
With a little planning, you will eliminate any downers in your downsizing, and welcome in a fresh new step in your life with a new home that will last you well into the sunset years.
For more information on retirement, be sure to download MoneyTips FREE eBook, The Retiree Next Door: Successful Seniors' Surprising Secrets, and learn how to best prepare for the future!