Many of us over 50 already thinking about how to downsize for retirement and where to live for the rest of our lives.
However, downsizing can be a scary word.
The first reaction is to feel that downsizing means leaving the big house where you raised your kids and create priceless memories. Saying goodbye to a place you’ve called home for decades will be difficult for every family.
But you may want to make a change when the kids moved out and you realize there are only two of you living in that big 4-bedroom house. Getting closer to retirement is a good time to start evaluating what is important in your life.
By focusing on your priorities and passions, you can make space for the things that really matter. Downsizing to a smaller space could help you to simplify your life. It will allow you to shift focus from “maintaining stuff” towards experiencing life.
For many people downsizing also means reducing the cost of living, saving money and adding more to retirement funds.
Whether you want to save money, simplify your life, or be able to travel more, downsizing can be good for retirement living. Check out our tips to see if downsizing is the right choice for you.
Here are 5 tips on how to downsize for retirement:
Downsize to save money and reduce the cost of ownership.
We are all emotionally connected to our home. However, home-ownership comes with huge financial responsibilities. Housing is the largest expense for most people. Do you know how much your current home costs you? if not, it is time to sit down and calculate the combined cost of mortgage, taxes, insurance, utilities, maintenance, repair, and renovations.
Average American household spends around $13,153 annually on home-related expenses without the cost of a mortgage. Our family spends more than $28,000 a year on mortgage, taxes, insurance, utilities, and maintenance. This is 25 percent of our annual budget without the cost of major repairs or home improvements.
Downsizing is a big decision that will affect your finances. Here are some questions to answer:
Are your kids grown, and moved out of the house? Is it a big house with a big yard? Do you have more space than you need? Do you live in a high property tax area?
If the answers are yes, what keeps you in your home?
The smart choice will be to sell your home and move to a smaller home or condo. Downsizing to a smaller home or condo will help to reduce your utility bills, property taxes, and cost of maintenance. This way you can save more money by reducing the cost of ownership and get extra cash into your pocket today.
In addition to that, downsizing can significantly increase your retirement savings and affect the quality of your life in retirement. After the sale of your home, you will end up with extra money that can be invested. Or your mortgage payments will be reduced if you get a mortgage for a smaller home.
Calculate the cost of selling a house and moving out.
If you decide to sell your home and move out it will come with the price. Even a paid-off home cannot be sold for free. When you talk to a local realtor, you’ll find out information about the local real estate market and for how much you can sell your home. Once you get the estimated price, you should subtract from that number the following:
- Realtor’s fee (typically 5 -6% of the sale price)
- Cost of upgrades and staging
- Attorney fees and sale taxes
- Your remaining mortgage balances
The final number will show how much money you’ll put in your pocket after a home sale.
Most people feel overwhelmed by the idea of selling home. But moving out add more apprehension to the whole process. Moving out of a home where you spent many years of living will come with additional expenses.
First, you need to decide what to do with all your belongings – what to keep and what to sell. Then you need to pack, figure out logistics and hire movers.
The average moving costs depend on your local area. Usually, local movers charge by the hour. In the Metro Boston area where we live to hire professional movers is very expensive. Once, we decide to move out it will cost us $119 per hour for 2 movers and truck, $139 per hour for 3 movers and truck and $169 per hour for 4 movers and truck.
According to the American Moving and Storage Association, the average cost of a move is $2,300 within your state and $4,300 between states.
Decide what to do with your possessions.
Over the years we have accumulated many things in our homes. We cherish our possessions and move them from shelf to shelf. There is an estimate showing that a quarter of Americans with two-car garages don’t use them for their cars, but as storage for family stuff.
Downsizing your family belongings can be a time-consuming process. And it will drain you emotionally and physically if not done without a good plan. If you’ve been living in your home for decades, it will take hours to go through everything you have accumulated.
First, you need to decide what is important and what you absolutely need to keep. Then pick what you want to sell, give away, or toss.
Here are a few ideas on how to purge closets and rooms while downsizing your home:
- Sort everything out by categories rather than by rooms. Start with larger items like furniture and then make your way down to clothes, books, documents, and finishes with sentimental items like photos and kid’s artwork.
- Scan all papers and legal documents. You can simply scan most of your legal documents to the computer. Then you can upload a file to the cloud using service like DropBox or save it to an external hard drive. But please remember to keep a hard copy of all documents like passports, birth certificates, marriage certificates, estate wills and trusts, and property deeds.
- Scan and upload favorite family photos or your children’s artwork to your computer. It’s very convenient if you don’t want to take old boxes filled with precious memories to your new home.
- Have a garage or yard sale for items in good condition. Post flyers in your neighborhood and invite family and friends to come or spread the word. Selling furniture or home goods in good condition will help to downsize and get extra cash to pay for your moving expenses.
- Sell items on craigslist or E-bay. Craigslist is very convenient for bulky or heavy objects you don’t want to take with you. Take a few minutes to look on E-bay and Craigslist websites and see what others are charging for the same piece. Then take good photos of the items you want to sell and post them with a detailed description and estimated price.
- Offer to give away furniture or home goods to your kids, friends, family members, and even your neighbors.
- Bring items you cannot sell to a donation center like Goodwill or Thrift store. Don’t throw things in the trash. When possible, try to find them a new home. Donations of new and reusable items can be sold at reduced prices or help to fund free educational programs for low-income communities.
Decide if you want to rent or buy in retirement.
There are pros and cons to both renting and buying for retirement. I know that most people prefer to live in their own homes because of feeling safe and independent. However, there are still many good reasons for renting in retirement.
When you’re getting closer to retirement you no longer want the hassles of maintaining a large home. You don’t need to live in that 2,500 square feet house with a big yard if it’s just two of you. You are tired of mowing the lawn, raking leaves, or fixing faucets and lights.
You need less space and you want someone else to take care of the place. That’s why becoming a renter might be your option. You would like to have a janitor who would fix a leak in your bathroom and someone else would cut the grass and water the flower beds.
As a renter, you would have more free time and less maintenance. Your time will be spent on playing golf, visiting your kids and grandkids, going to an art gallery, or traveling the world and explore new places. And it is easy to pack up and move somewhere else if you want to travel or become a snowbird. You don’t have to worry about renting out or selling your home.
Living in a small space.
Have you thought about if you going to be happy living in a small space? If you decide to downsize and move from 2,500-square-feet to 700-square-feet condo, you need to consider how it will affect your new lifestyle.
Do you like to entertain and throw big parties? Do you have a big family and expect many overnight guests? Will you need extra space for a hobby?
The rooms will be smaller in your new home. And you might feel it difficult to visualize the new layout of your furniture, sports equipment, and other belongings in those rooms. In this situation, you probably should consider selling most of your big furniture pieces including dining sets and travel lightweight to your new home.
Moving out of your home to a new place could be incredibly stressful. You have to take all your possessions, memories and the lifestyle you’ve created over many years and turn it upside down. For most of us, it’s comforting to retire at home. For others, it’s a new way to explore the world.
Putting It All Together
Retirement should be an exciting stage of our lives. And ideally, it should be all about crossing items off our bucket list. But if we stay in that big house after the kids moved out, we will spend a lot of time maintaining it. Downsizing and moving to a smaller place can simplify our life. It will give us more time to hang out with grand kids, time to travel and see the world, or just do what we like to do, but never got to it.
What are your thoughts on downsizing for retirement? Share your ideas with us in the comments below.
Have you enjoyed this blog post? Make sure to hit that sign up button for more blog posts like this!