Downsizing for Retirement?
If you’re like many homeowners, your net worth took a dive between 2005 and 2010. Median household net worth dropped by 35% during that time, according to the U.S. Census Bureau. This disastrous drop was driven largely by declining property values.
Median net worth was $66,740 in 2010. More than $50,000 of that is still tied to home equity. For many retirees and those about to retire, getting a handle on that home equity is (and should be) a big part of retirement financial planning.
Do you plan on relocating when you retire?
This may mean downsizing, and throwing your lot into more than just your home, which is only a single, illiquid asset. Downsizing may mean more discretionary income and that your retirement investments go further.
Why Consider Downsizing in Retirement?
Simply put, downsizing in retirement is a sound financial decision for many, many retirees. For many, retirement is about simplifying and finding a more senior-friendly environment. It could mean living out fantasies of travel. In these cases, a large home or a house with empty rooms doesn’t make much sense.
Reason 1: The Money
Scaling back home space could also mean more discretionary income:
- Helps reel in utility costs
- Reduces maintenance and repair costs (for the house AND the yard!)
Where does that extra cash go? Wherever you want! Toward travel and leisure, or toward your children and grandchildren…
Tax savings in Florida
“Scaling back” could mean relocating, for some. Florida is a popular retirement spot for many reasons besides just the warm weather:
- No state income tax
- Cost of living is relatively low
- May take a big bite out of real estate taxes compared to other states
Property taxes for homesteaders in New Hampshire, for example, may be around $7,000 a year whereas in Florida, it is typically around $800. That’s a huge difference! (And gives yet another reason why retirees love Florida.)
Of course, many people are simply too in love with the place and location in which they’ve built their lives. This is most likely the biggest reason for not downsizing in retirement and moving away.
Reason 2: The Ease
Getting into more senior-friendly surroundings definitely makes sense:
- Upkeep is easier with a smaller space
- Closer to shopping, health care, and other things you need to access easily
- Makes it easier to travel or move to a different part of the country
- Eliminating stairs and other structures that may be problematic for the elderly
For those transferring from a house to a condo or apartment, the ease of not having to worry about mowing the lawns or cleaning the gutters and such is absolutely worth it!
Reason 3: The Freedom
Is it time for a change of scenery? The freedom to choose where to go simply because you are free to do so is a great perk of retirement, considering most people have to factor in jobs and children when deciding where to live.
Downsizing in retirement could also mean getting closer to the things you want to be closer to, including the arts, education, a military base, and your children.
Do you plan on downsizing for retirement? Perhaps you’re waiting until the housing market recovers a little bit more? Or are you satisfied that your current situation is already ready for retirement?