There are many ways and reasons to downsize. You can downsize in space, costs, and clutter. Many downsizers’ goal is to move to a smaller space or find a similar-sized space for less money. Both goals can help you reduce living expenses, which is one main reason most people choose to downsize after retirement.
According to Bankrate, about 10 million retirees will choose to downsize after retirement by 2030. However, you should consider both the advantages and disadvantages of downsizing to determine if it’s the right move for you.
1. Lessen your maintenance
If you’re living in a single-family home, outdoor maintenance may include cutting the grass, trimming the hedges, weed eating, and cleaning out gutters. However, there is much to upkeep within the home as well, such as vacuuming, dusting, and changing filters. If you have a larger lot and home, the financial and physical strain the necessary maintenance can put on you may be a good reason to downsize after retirement.
Options that can reduce your maintenance needs include:
- Downsizing to a smaller lot with less land to upkeep.
- Moving to a home with less square footage.
- Relocating to an apartment or retirement neighborhood where most of the maintenance is done for you.
2. Reduce living expenses
A great reason to downsize after retirement is to reduce living expenses, such as mortgage payments, home insurance premiums, and utility costs. Selling your home in retirement can lead to paying off an expensive mortgage and replacing it with a more affordable one or using the sale’s profit to apply towards other debt. For example, if you make $50,000 on the sale of your home, you could pay off car notes, credit card debt, or any leftover student loans you might have.
In addition, you could use the snowball debt strategy and apply the money you would have been paying on your mortgage to another debt. Of course, you may need to apply most of that payment towards your new mortgage or rent, but the difference can then be applied to other debt.
3. Boost your retirement fund
According to the Transamerica Center for Retirement Studies (TCRS), the median savings for someone in their sixties is a little over $170,000. As well, 47% of workers in their sixties expect their Social Security retirement benefits to be their primary source of income after retirement. Seeing that the average Social Security check is a little over $1,500 in 2021, many retirees will outlive their retirement fund.
Instead of using the profit from your home’s sale for other debt, you could add it to your retirement nest egg. If you profited $50,000 from the sale of your home and double your monthly Social Security check, that profit could last for nearly three years as additional income.
4. Spend more time with family and friends
According to TCRS, the second greatest retirement goal of people aged 60 and older is spending more time with family and friends in retirement. The greatest retirement goal among seniors is to travel. If these goals align with yours, downsizing in retirement may help you achieve them.
You could downsize to a more cost-effective location near friends and family. You could become an RVer and travel from state-to-state visiting family and friends while traveling the country. Also, downsizing to an apartment can make traveling easier as there is less to worry about during your trip since maintenance is handled for you.
5. Pay only for the space you need
According to the U.S. Census Bureau and U.S. Department of Housing and Urban Development, today, the average single-family home is about 2,500 square feet. In 1975, the average was approximately 1,500 square feet. The reason this is noteworthy is that families today are generally smaller than families in 1975. Therefore, most homeowners are paying for much more space than they actually need.
Your 2,000 plus square foot home is likely the home you raised your kids in. However, now that you’re an empty nester, most of that space is of no use to you anymore. On another note, the average cost per square foot for a single-family home in 2019 was about $114, according to the National Association of Home Builders (NAHB).
Therefore, if you’re paying a mortgage on a $285,000 house ($114 x 2,500 sq ft), you could likely save hundreds a month on mortgage payments by downsizing to a home that only has the necessary square footage you need to be comfortable.
Things to keep in mind before downsizing in retirement
Downsizing may not be the most cost-effective route for everyone. Before you downsize after retirement, consider your moving expenses, such as movers, taxes, and closing costs. You’ll also want to consider the cost-of-living in your desired location. Beyond the potential costs of downsizing, you’ll want to think about the work it takes to move into a smaller space, such as decluttering.
After you’ve considered all the advantages and disadvantages of downsizing after retirement, you should be able to determine whether it’s the right move for you. That way, you can start retirement off on the right foot.