downsizing for retirement

5 Tips on How to Downsize for Retirement

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.

folded dollar banknotes on a table -5 tips on downsizing for retirement

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.

Moving Cost Calculator – Figure Out How Moving Changes Your Finances

Decide what to do with your possessions.

table with tea cups, lipstick and young and old women hands

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.

small houses on hilltop - 5 tips on downsizing for 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.

a woman holding a flower on a window sill

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.

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Rent or Buy in Retirement?

by Maggie 2 Comments

water view landscape with houses and boats - retirement

Housing costs will be one of the major living expenses in retirement.

Many people in their 50’s and 60’s think about downsizing and if they want to rent or own in retirement. To rent or buy is always a tough decision. Making that decision before retirement can be even more challenging.

You should figure out your cost of living in retirement, the potential house prices, the cost of home maintenance, property taxes and insurance, and then compare it with rent prices in the same community.

Besides making a financial decision, you need to think about how it will fit into your new lifestyle. Do you love to own your place and fix it up the way you want it? Or it will be a big relief not to worry about yard work, broken faucets or a water heater?

If you’re getting closer to retirement you might already have an idea how you want to spend your days. Buying a condo by the water or on a golf course might fit your retirement lifestyle perfectly.

Other people want to sell the house, cash out and spend money on travel.

How to figure out if you are better off renting or buying? Here are some key factors to help you with rent or buy decision.

Where do you want to live in retirement?

The good thing about retirement that finally you can live anywhere you want. It’s nice to know that you no longer need to live closer to your work or where your kids go to school. Instead, you can relocate to a place with a better climate, lower cost of living or just a place you were dreaming about.

Did you think about where you want to live in retirement?

Are you planning to relocate to a different city or state?
Do you want to live closer to your kids, grandkids or friends?
Or maybe you want to move abroad and live there for the next 5 or 10 years?

I have a long list of places where I want to live in retirement. But I’ll be honest with you, living closer to my daughter will be one of the biggest reasons why I might choose to make a move in retirement.

What is your lifestyle in retirement?

water pool next to Mediterranean villa - lifestyle in retirement

What do you want to do when you stop working? What kind of lifestyle do you want to have? What kind of activities do you want to be involved in?

Whether you realize it or not, you probably already have different ideas or dreams in your head. So, take a piece of paper and write down the list of your ideas. And don’t forget to discuss it with your partner to see if it will work for both of you.

Here are some ideas for your list and questions to answer:

Do you have any hobbies?
Do you like gardening? Do you like to read?
Do you like traveling?
What would be your daily routine when you stop working?
Are you planning on working part-time?
Are you healthy and active? What are you doing to stay healthy?

Where you’ll live and how you want to live in retirement will be one of the most important decisions you have to make. This decision will affect how much money you’ll spend on housing and how much you’ll have left to enjoy life. Compare and discuss with your partner the options of where and how you want to live in retirement.

If you’re in your 50’s or 60’s and working you still have time to decide. Moving can be expensive in terms of money and time spent. Therefore, you don’t want to make a decision that you’ll regret in a few years.

What are the pros and cons of owning in retirement?

table with smart phone, coffe cup and glass of water - discussion

When you start thinking about downsizing you need to decide whether home-ownership or renting makes the most sense for your situation. Like any decision, it will depend a lot on emotional and financial issues.

Pros of home-ownership

Emotionally attached. Home-ownership is special. We are emotionally connected to our home which means downsizing and selling a home will be painful.

Sense of stability. Home-ownership gives you a sense of security and stability. Many people feel safer knowing that they own their home. There is a sense of security in knowing that this is your home, and nobody will kick you out of it. Although, you don’t need to worry about a landlord bumping up the rent or start major renovation and ask you to move out.

Fixed mortgage payments. I know that many of us worry about mortgage payment and how to afford it in retirement. But if your mortgage is paid in full, you’ll only need to pay property taxes and insurance. Even you still have to make mortgage payments in retirement, it comes as a fixed payment.

Home equity and tax benefits. For me, there is another important advantage of home-ownership – building equity. I like to know that with every mortgage payment we accumulate more equity. We can take a home equity loan, line of credit or even a reverse mortgage if we need it.

Increase in value. Everyone knows that housing prices are going up. In many popular places, you can see a significant increase in value if you own a home for 10 or 15 years.

Control over updates or improvements. If you own your home, you can do any kind of improvements or renovations without asking landlord permission. The same comes with pets. There are different kinds of policies and restrictions on what kind of pets are allowed in rental buildings. When I was a landlord one of our tenants had a rabbit and they didn’t take good care of their pet. After tenants moved out, I had to renovate the entire apartment and repair the damage done by that pet.

Cons of home-ownership

Your money is tied up. If you decide to buy a house or condo in retirement you will be using a big chunk of money for down payment or paying full price in cash. Your money will be tied up in that home for a long time. It’s going to be harder to get a mortgage when you retire because you don’t have an income. So, if you consider buying a home, make sure to do that before you stop working.

Cost of repairs, maintenance, and renovations. We all know that owning a house means repairs, maintenance, and yard work. It could cost thousands of dollars if you need to replace the roof or your heating system. Maintaining the house and the yard takes time and money. Also, you might want to renovate your new home and make it more personal. But it could be expensive when you live on a fixed income.

Hard to sell. Your home is a real estate investment and real estate is not considered a liquid investment. It cannot be quickly converted to cash like stocks or bonds. As a result, it is hard to sell when you need money.

What are the pros and cons of renting in retirement?

a woman stretching in front of open window - rent or buy in retirement

Whether you want to rent a smaller house or a downtown condo, you need to decide what you want out of a rental. And again, it will depend a lot on financial and emotional matters.

Pros of renting

Renting is cheaper than owning. In some places renting makes sense if rent is cheaper than your mortgage. When we retire Roman and I want to move closer to the city. So far, our mortgage is $2,100 a month. There are several newly built apartment buildings in Cambridge, MA. When I checked out the prices, I found out that to rent a one-bedroom apartment would cost $2,500 a month or higher. Therefore, in that part of the city, renting is not cheaper than owning for us.

Your money is not tied up. Owning a home in retirement is not always financially wise. If renting is cheaper than owning, you’ll be better off to invest your retirement funds and let it grow. It can increase your retirement income because investments often grow at a faster rate than real estate. The only money you tie up is your security deposit. With the fixed cost of rent and no taxes or insurance, you can have enough cash for travel, activities or charity.

No yard work or maintenance. When you became a tenant, you hardly have any responsibilities, besides paying rent on time. So, when the water heater needs to be replaced or the faucet leaks, you just pick up a phone and call the landlord. You don’t need to worry about the upkeep of the rental building or any repair costs. You can spend time and money on your favorite hobbies and activities.

Flexibility – I like the idea that I can lock the door and go away. I don’t need to worry about who would collect leaves, trim bushes or clean gutters. And if I want to relocate to another place it is faster to end when I’m a tenant and not an owner.

Cons of renting

Increase in rent. Usually, rents go up every year. When you own a home, your mortgage is a fixed payment and you could only expect an increase in taxes and insurance. With rent, you could expect a 3 to 10 percent increase every year. Also, with every payment, you don’t build any equity. Besides, when the real estate market is booming and prices are going up, you don’t get any appreciation. Your landlord builds equity and gets all appreciation from the rising real estate prices.

No feeling of security. I know that dealing with a landlord is not always easy. I had been a tenant and a landlord myself. Your landlord can decide at any time to sell the place, force you to end the lease and find another place to live.

Inconveniences of renting. Renting a place might include many inconveniences. You will need to get permission from a landlord or property manager if you want to re-paint or decorate your place. Some rentals do not permit pets or have a strict pet policy. You might deal with issues like noisy neighbors, poor maintenance, shortage of parking places, and more.

Putting it all together

My husband Roman and I dream of traveling around the world when we retire. We want to explore the world living off our retirement money for 5 or 7 years. While we plan on buying a home, we consider renting a place as a home-base while we travel.

Short-term renting will fit our lifestyle. We won’t worry about leaving our rental apartment for several months as we would be if we owned the place. I will have more peace in mind locking up and leaving as a tenant than as an owner.

There are lots of options to consider. But the key is to decide what you would like to do. And then to have enough money to live your life the way you want it.

Have you thought about renting or buying in retirement? Share your ideas with us in comments.

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