With the average retirement costing retirees upwards of $50,000 per year, it’s no surprise that cutting costs is a big part of financial retirement planning.
Some start budgeting on groceries, perhaps cut the kids off from the payroll, or maybe they even decide to retire somewhere where they can get more bang for their buck—like Ecuador or Costa Rica, for example.
But one of the main ways retirees are able to cut costs to help afford retirement is by downsizing their homes. Think about it, if you’re retiring you’re likely an empty nester, perhaps you don’t want to get around—let alone, clean—a big old house anyway.
Moving into a smaller house upon your retirement makes sense for a number of reasons, but there are some things you should consider before you do so.
If you’re thinking about moving into a smaller home as you enter your sunset years, be sure to look for the following things.
Rent or Own?
The first thing you need to determine when you’re weighing your housing options is whether you want to rent or buy your new place.
Of course, both have their advantages and disadvantages that you’ll need to consider based on your unique financial situation. Here are a few considerations to keep in mind.
- Renting gives you more flexibility to move around as you please.
- Owning requires more capital up-front. Certain institutions offer mortgages at reduced rates: FHA loans and VA loans are two examples.
- Owning your home can provide some tax benefits and asset equity which may be valuable to your retirement funding. Some states (like California) employ rent credits to provide taxpayers with a break on their annual income taxes.
- Rent can be a more feasible opportunity when factoring other retirement costs.
Downsizing Your Home: Price
This one may seem obvious, but you know better than anyone how hard you’ve worked for your retirement savings. When deciding whether or not to invest in a new property, you should consider how much your home is worth in comparison to the property you want to buy.
This will help you decide whether buying a house is really a worthwhile investment as you prepare to retire. If both the selling price of your home and the buying price of the property are favorable, this could be a great way to boost your retirement savings and cut cost on things like utilities and maintenance.
In addition to the outright cost of the available property, you should also keep in mind any repair costs that may come your way if you’re shopping for an older home or a fixer-upper. These costs can quickly add up and in turn, jeopardize the value of your investment.
On the other hand, if you’re handy yourself and are ready to take on some extra projects upon retirement, buying a fixer home may be the ideal investment for you.
Downsizing Your Home: Accessibility
While the idea of retiring is glamorous—golfing, chasing sunsets, and picking up old hobbies—there are some unfortunate realities to consider when shopping for a retirement home.
Let’s face it. We all get old. So as you shop for a smaller house after you’ve called it quits with your day job, you need to think long-term about living in the new house.
- Are there stairs, and will this be a problem as you age?
- Are your family members or caretakers close by?
- Is there a lot of outdoor maintenance to do?
All of these factors impact the longevity of your investment, so it’s important to think about them straight away!
In the same vein, finding a location that’s walkable, accessible, and friendly is also important! Here are some neighborhood features to look for as you search for your next home in retirement:
- A community center or fitness club to walk to
- A market that’s close by. If not, utilize a local grocery delivery service
- A hospital or urgent care center in the event of an emergency
Downsizing Your Home: Final Notes
As you prepare to retire, you’ll need to make some serious financial decisions. How to save for retirement, whether you should downsize on your home, whether you want to retire abroad, and when you’re ready to retire.
As you make these decisions, it’s important to weigh your options thoroughly in order to make the best decision for you!