Is Downsizing Right For You?

For many, the American Dream is not completely until you finally cross the finish line and achieve the ability to retire. It is at that time when you get to celebrate decades of hard work and enjoy the fruits of your labor. For many Baby Boomers, the time to retire is now. In fact, a record number of Baby Boomers retired in 2020. As you approach retirement age, there are a lot of things to consider. You have to consider sources of income, ways to spend your time, as well as where you want to live. These are daunting considerations for many. Fortunately, homeowners, especially those with a lot of equity, have a lot more flexibility. If you own a house then you have a place you can choose to call home. However, some retirees opt to downsize their home. If you’re about to retire, is downsizing right for you? 

Downsizing Consideration: Less Space

One reason why many retirees consider downsizing is that they are looking to simplify their lifestyle. Downsizing your home might help you in this goal because it will mean you have less of a house to take care of. Many retirees who are homeowners still have their houses from when they were taking care of their families. However, now that they are at retirement age and their kids have left the house, there is no need for all of those bedrooms. 

While this makes sense, in theory, it does not always simplify things in practice. If you are like most Americans, then you have a lot of items in your house that match the size of your home. Moving into a smaller home means that you will not have the same space as before. In turn, you will need to get rid of items. For some, this goes along with the idea of simplifying your life. Less clutter and less items to take care of. For others, getting rid of items in your home is a difficult process. You will have to go through everything you own and only take what fits or you need to rent additional storage. Getting rid of items in your home is liberating for some and stressful for others. Where you fall on this spectrum might help you think through if downsizing is right for you. 

Downsizing Consideration: Where to Retire

For most Americans, where we spend our lives is determined by where we work. When you are retiring, you no longer have to make where you live based on where you are employed. Many retirees, especially in cold weather states, opt to downsize and move to warmer locations. For this reason, many of the top places that retirees choose to live are located in Florida. Not only does the Sunshine State offer an opportunity to leave the snow, but it also offers a place to live with less taxes. For retirees who now have to worry about having less income, reducing costs is a big consideration. 

While getting out of the snow and moving closer to the beach is right for some retirees, others want to stay where they are. For some, the idea of leaving family and friends is not the benefit of milder winters. At the same time, many people love the places they are in. They are where they grew up. They are where they raised families. Some people love driving down the street and being flooded with all of the memories that were made. Moving, buying a home, and selling a home are all very personal processes. Having a house is much more than merely having four walls and a roof. It is an anchor for the life you live. Where you want to live is one of the biggest considerations to think through if you are deciding on whether or not to downsize. 

Downsizing Consideration: Mortgages and Finances

Retirement is a big step in one’s lifetime because it means no longer being tethered to a job. However, in order to retire, it is necessary to have enough wealth and financial security to step away from the workforce. Not only do you need a stable income, but you also need a place to call your own. For many, the dream of retiring seems further away than ever before. As a result of the pandemic and its economic fallout, 82% of Americans fear that COVID is changing their retirement plans. Fortunately, homeowners are better equipped to consider retirement than non-homeowners. 

Owning a home is one of the best ways to build wealth. Selling your home and downsizing is one way that you might be able to take advantage of the wealth you’ve built by being a homeowner. Homeowner equity has increased dramatically over the past year thanks to rising home prices and a red hot real estate market. Selling your current home and buying a smaller home is a way to get to take advantage of the equity you have been building. Any difference between how much you sell your current home for and how much you buy your smaller home for can be used to fund your retirement. 

This does not necessarily apply only to homeowners who own their home outright. Even if you have a mortgage, you can take advantage of downsizing. The extra cash you get from selling your current home can be used to pay off or pay down your mortgage. Either way, buying a smaller home has the potential to put the wealth you have been building to work for you. Not having mortgage payments or having less mortgage payments is a way to make your retirement dollars go further. 

Final Thoughts

Choosing to downsize your home as you prepare for retirement is a personal decision. It will make sense for some, but will not make sense for others. Whether you choose to sell your current home and buy a smaller home is a decision that should be based on your lifestyle and your finances. However, whether or not you choose to downsize, it is fantastic that being a homeowner gives you options. If you are approaching retirement and are considering selling your home or buying a new one, contact us! Our team of professional realtors would be happy to walk you through your options and what to expect in today’s real estate market. Let the team at Streamline Realty help you navigate your home needs for retirement.