Most retirees are hesitant to downsize. A study by the Society of Actuaries shows that nearly 64% of retirees wish to remain in their current home throughout retirement, while 44% of pre-retirees agree. It’s comfortable, it’s yours, and it’s home.
But staying in a large family home into retirement becomes costly and makes it difficult to age in place. Nearly 30% of retired homeowner expenditures are housing-related, which includes taxes, insurance, upkeep, and utilities. If you can get over the emotional hump, you may find that making it to the other side of downsizing is well worth the benefits, including tapping into your home equity. (For homeowners over the age of 65, that’s no small chunk of change at a median value of $140,000.)
If the thought of this big move doesn’t exactly excite you, follow this downsizing for retirement advice to make the process more manageable, organized, and 100% worth it in the end.
Commit to a serious downsize.
In order for downsizing to pay off, you have to actually downsize your home. This means a significant decrease in square footage and belongings at the end of the process.
“I have had many clients say they want to downsize and inevitably they downsize 100 square feet. They end up moving into a house that’s just a little bit smaller,” says Steffany Farmer, a Savannah, Georgia real estate agent who has sold over 70% more properties than the average agent.
Downsizing has more than just financial benefits for retirees, according to Lori Thomas of SeniorAdvice.com, a site dedicated to helping people understand and find the best senior care for their loved ones. Smaller homes are easier to maneuver and manage through retirement.
“Most people don’t think of the long-term when downsizing. Maybe they don’t think twice about moving into a place with stairs, but over the long-term stairs might become difficult with old age,” says Thomas. “And it’s generally more expensive to heat and cool a two-story home.”
Calculate how much housing you can afford.
Moving into a smaller house doesn’t mean you’ll automatically cut costs. If you move to a newer property or one in an expensive area, your costs could increase significantly.
Before you sell your house to downsize for retirement, make sure you move into housing that saves you money. Especially since as you transition into retirement and your cash flow shifts.
Here are some useful tools to calculate the housing you can afford.
Use a retirement cost calculator to determine how much cash you’ll need to live comfortably through retirement.
- Vanguard cost worksheet helps you estimate your monthly expenses in retirement.
- Smartassest’s retirement calculator tells you just how much money you’ll need to retire.
Determine the mortgage you can afford for a new house.
The following online mortgage affordability calculators can help you understand your mortgage budget.
- Chase Affordability Calculator estimates the home price you can afford based on your monthly income, expenses, and mortgage rate.
- Quicken Loans Home Affordability Calculator calculates the maximum home price you can afford.
- Bank Rate Mortgage Calculator uses your estimated monthly payment to see how much you can afford.
Calculate your monthly costs and take-home pay.
- Determine your current monthly take-home pay. According to the Social Security Administration, the average monthly benefit for retired workers in 2016 was $1,360.13. The Bureau of Labor Statistics reported in a 2014 Consumer Expenditure Survey that the average pre-tax income for 65 to 74-year-olds was $52,366.
- Subtract the following costs:
- Health insurance
- Car payments
- Monthly living expenses (food, utilities, clothing, etc.)
- Travel expenses
- Extra costs
- With the remaining amount, subtract mortgage or rent costs to see how much you can afford to spend on housing.
Figure out your home sale proceeds when you sell your house.
- Find the estimated home value for your home.
- Add value for any amenities your home offers
- Subtract value for any issues with your home
- Subtract costs for home staging, upgrades and marketing
- Subtract real estate agent commission (typically 5-6% of the sale price)
- Subtract attorney fees, taxes, and HOA fees
- Subtract your remaining mortgage balance
Research the current real estate market.
When you are downsizing for retirement, the last thing on your mind is what’s going to happen 30 years down the road. You may or may not be around to see it and, hey, why jinx it?
But, the real estate market in your area is something you need to think about when making a large investment. When you turn 85 years old and want to sell your home, you’ll thank yourself for looking into housing market predictions years before.
Here are the factors to research when you are buying and/or selling a home.
- Look at the home values in the neighborhood.
- Find the price growth over time.
- Take note of the inventory or the number of active listings in the area.
- Research the interest rates for a mortgage in that state.
- Talk to a top real estate agent about local housing market trends.
Prepare to compete with first-time home buyers.
Like most downsizers, you probably picture yourself in a single story home or condo that’s small enough to clean in one sweep, but large enough to entertain family and friends. And, best of all, a low list price.
You’re not alone.
First time home buyers are jumping on starter homes. The largest share of home buyers are 37 years of age and younger––65% of whom are first-time homebuyers. There’s a lot of competition out there when it comes to small, affordable homes.
Here’s how to beat out the competition of first-time home buyers:
- Sell your house before you make an offer on another home. Therefore, you can buy the house without waiting for your home to sell.
- Offer to pay for the home in all cash. The sale of your previous home could give you the leverage to make competitive offers, which will entice sellers to choose your offer over the rest.
- Work with a real estate agent who’s an expert negotiator. A top real estate agent can negotiate with sellers and get your offer to the top of the pile.
Prioritize your lifestyle goals.
You’ve been daydreaming about this from your desk at work for years. Finally, you’re retired and you have the freedom to do everything you’ve wanted to do. Before you sell your house to move into a new one, visualize your day to day priorities in your new life.
According to a study by the Transamerica Center for Retirement Studies, 53% of retirees spend more time with family and friends. If hosting family dinners and babysitting your grandkids is a top priority, downsizing from 2,500 square feet to 500 square feet will be an issue during Thanksgiving dinner.
If you are part of the 33% of retirees who spend most of their time traveling, a humble, low-maintenance abode close to airports or freeways is just the ticket.
Don’t wait to downsize your belongings.
You have more stuff than you realize—the average American household has 300,000 things. It takes hours on end to go through everything you’ve been piling up for decades.
“We’re actually going through this personally and we have four rooms in our house that we just never use,” says Farmer. “Two of them were filled with our favorite furnishings, so it made it a little challenging.”
The reality is, there’s no way to avoid these hard decisions. You have to decide what is important and what you absolutely need, and what you can discard, donate or sell.
Here’s how to purge your closets, junk drawers, and garage to downsize everything you own.
- Lay everything out in front of you and sort through it one by one.
Yes, it takes forever… that’s why we’re telling you to start now! Marie Kondo, tidying expert and creator of the KonMari method, says to go category by category rather than room by room. Start with clothes, books, papers, miscellaneous items, and end with sentimental items. Hold every belonging in your hands to see if it “sparks joy”. If it does, it’s worth keeping.
- Upload pictures, videos, and irreplaceable mementos to a hard drive or cloud storage.
It can be hard to part with your children’s’ kindergarten art projects. You don’t have to. Scan each sentimental picture or artwork onto your computer and toss out the physical stacks of precious memories.
- Invite your kids to take furniture of their choosing.
The dining set that has been passed down for generations won’t fit in your new downsized home. Now’s your opportunity to give your favorite furniture to your children, family members, or friends with bigger homes.
- Have a garage or estate sale for items in good condition that you no longer need.
Post flyers in your neighborhood and tell friends and family to spread the word. You can make quick cash on furniture and home goods to contribute to your moving funds. With everything you sell, you’ll have one less thing to worry about.
- Donate leftover items to Goodwill.
Bring items to a donation center like Goodwill to make sure your belongings don’t end up in a landfill. Unsellable items at Goodwill are put into a “salvage stream” where they are sold to textile and other recyclers or recycled in some other way.
Downsizing belongings are time-consuming and emotionally and physically draining. Ask your family and friends to help you sort through the items in your home. Play some music and serve snacks and drinks to make the process fun.
“If the task of downsizing items it too daunting, consider renting a temporary storage unit to store items until you can thoughtfully consider keeping, selling or donating items,” says Thomas.
Time your downsizing move strategically.
Your timing is everything when you downsize for retirement. If you sell your house when the market is low, you risk leaving money on the table. Move too fast and you miss your goals—but move too slow and you miss out on opportunities.
Check off these tips to time your downsize right:
- Make sure its the best time to sell in your market.
- Become familiar with your long-haul finances.
- Start the decluttering and minimization process with your belongings.
- Know exactly what your next steps are (location, size, rent vs. own, etc.)
- Talk to a top real estate agent to plan your downsize.
There isn’t a “perfect” time when every retiree should downsize—your individual circumstances will put the picture into focus for you.
Decide which property type and features are right for you.
“The thought of downsizing and saving money can be exciting, but it can be tricky if all things aren’t considered,” says Thomas.
When it comes to choosing your next property, it has to check all of your boxes in order to be a worthwhile retirement investment.
“For instance, property taxes could increase, a high cost of moving, higher HOA fees or even restrictions on that RV that you used to be able to park in your driveway, but now you have to purchase storage for,” says Thomas.
The following decisions are necessary to choose your next home for retirement:
- Choose between a low-maintenance apartment or manageable single family.
You’re probably used to the freedom and space of a single family home, but apartments and condos offer a simpler lifestyle, with less upkeep and square footage. Regardless of the home type, make sure your new home is suitable for retirement. Look for things like minimal stairs and a covered garage or parking space close to the door. Open layouts and wide doorways are best for wheelchairs and walkers. Get familiar with all of your retirement property options to make the best decision for your new lifestyle.
- Figure out if your best move is to rent or buy your next home.
There are pros and cons to both renting and buying your home for retirement. Renting a home takes away all of the maintenance responsibility. But, if you want to make changes to the space and possibly walk away with a profit from a resale, you might want to consider buying your next home. However, be prepared for various property taxes, high interest rates, and HOA and maintenance fees that could send you over your retirement budget. AARP’s Rent vs. Buy Calculator can help you decide which is the best option for you.
- Think about weather and accessibility in your next location.
Where you choose to move into retirement is a huge decision! You could join your grown daughter in Denver, Colorado or your retired sister in Siesta Key, Florida.According to Dave Ramsey, one of America’s most trusted sources for financial advice, the #1 city to retire in 2018 was Sarasota, Florida followed by (quite the opposite climate) Lancaster, Pennsylvania. If you plan to downsize into a new city, get to know the area before you commit to your next home. The proximity of your new home has more of an effect on your decision now than it did 30 years ago. Look for a home close to restaurants, shops, and even the airport if you are keen on traveling.
- Pick home features based on how long you plan to stay.
Decide how long you plan to stay in your downsized home. Whether it’s until you meet your maker or just for the time being, this plays a big role in your decision. Your new downsized life gives you the freedom to bounce around as you please and your timeframe in a location decides whether you rent or a buy a house or an apartment. But, wait. Before you spend summers in Colorado and winters in Florida, remember your retirement budget. Plus, traveling is exhausting and, well, you aren’t getting any younger. Aging in place saves you money and energy in the long term, so remember to think ahead when you choose your downsized retirement home
Partner up with a real estate agent who understands your needs
Real estate agents who are experts in senior downsizing know how to navigate the process so it’s worthwhile for you. Look for a real estate agent who is a certified Seniors Real Estate Specialist (SRES) or specializes in retirement relocations.
Experienced real estate agents offer more than market knowledge and proven success strategies. They’ll help you through every step of the process to make your transition into retirement easier.
Enjoy your retirement with a downsized home.
Retirement is an exciting accomplishment and downsizing your home helps you resolve recurring stress and responsibility.
“Change is hard, but retirement is a new chapter, and a new home and location comes with the territory. Many people downsize after retirement and face the same challenges—you are not alone,” says Thomas.
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