If you’re thinking about downsizing your home soon or for retirement, consider a few observations before moving forward. Three out of four Americans say they would downsize their home to reduce ongoing costs and benefit from the equity, according to the 2017 study “Finances in Retirement: New Challenges, New Solutions” released by Bank of America Merrill Lynch. A smaller home is not always the ideal solution. You might find unexpected financial and emotional challenges after making the switch. Following are some common misconceptions surrounding downsizing.
Selling will lead to a substantial financial gain. If you have a large home and no mortgage, you might believe the proceeds from the sale will be high, but this is not guaranteed. Selling your house might be more difficult than anticipated. If you have not updated in a while, you might have to renovate bathrooms or install new flooring to make the home more attractive to buyers. The cost of renovations will reduce the net proceeds, or you may need to reduce the price of the home if you leave the renovations to the new owners.
A smaller place will reduce living expenses. Less square footage does not necessarily mean reduced expenses. The location is important, and if you go from rural to city or landlocked to water view, you will likely see higher expenses. Moving to a condominium or apartment complex or retirement community may include charges for ongoing services such as yard maintenance, use of pool and golf courses, or a homeowner’s association fee. If you’re building a new home, be aware of costly change orders that can increase the price substantially. Property taxes are also important to check and compare.
Downsizing is the only way to boost your finances. You may be able to reduce your living expenses without leaving the larger place. You may have services such as landscaping or housecleaning that you don’t need as much anymore. Energy bills can be monitored with set temperatures at certain times of the day and utilities can be monitored. Maybe smarter ways to use your current space are possible without giving up the square footage. You might find less square footage means fewer overnight guests, for better or for worse!
Selling household goods will bring extra cash. You may do well selling your current furniture, but you may need to update or buy for your new place. Also, the supply of antiques and collectibles has greatly increased with the high number of baby boomers retiring and the market for said goods has reduced in both price and marketability. Donating such items might even be difficult.
Everyone should downsize. While many will find that moving to a more manageable living space will be helpful, to evaluate your own situation before making the change is wise. If you don’t have financial or health concerns about your current home, a reason to downsize might not exist. You might be more comfortable with the familiarity your current home offers. Consider all your circumstances to see if downsizing will help you to achieve your desired outcome.
September 28, 2018