Downsizing in retirement: How and why you might do it

Downsizing your home in retirement could seem like a good idea: you sell your property, move somewhere smaller and more affordable, and use the money you’ve made to afford a good quality of life after you’ve finished working. However, the realities of downsizing after retirement can often look different, and there are a few key things you should know before you consider selling up and moving out. We explore all the pros and cons of retirement downsizing, so you can get a clear picture of what your future living situation could look like.

There are several benefits to downsizing your home in retirement, such as:

Selling your home and moving into somewhere smaller could potentially see you making a substantial profit, leaving you with extra savings to enjoy during retirement. This could be especially true if the real estate market is working in your favor, allowing you to make the most of generous house prices and good interest rates.

As people get older, it can become harder to take care of their homes. Things like going up and down stairs, vacuuming and general housework can all become more of a challenge, making it harder to maintain a larger home. A smaller property can be easier to maintain, giving you a feeling of independence for longer while being gentler on your body.

One of the biggest challenges of retirement is the loss of regular income. Selling your home could free up money to allow you to enjoy the kind of retirement you always dreamed about, taking the financial strain off you once you finish working.

As with any financial decision, there are risks involved with downsizing after retirement, and you should make sure you’ve done your research before making your plan. 

Selling your home isn’t cheap, and things like realtor fees and closing costs can easily wipe out any profit you’ve made from the sale, leaving you with a smaller home without the expected financial reward. And when it comes to the actual move, relocation and moving expenses can add up quickly, from hiring movers to utility setup fees.

And don’t forget to factor in property taxes when you move — depending on where you relocate, your new home’s taxes could be higher or lower than what you’re used to. Also, if you make a significant profit selling your current home, capital gains taxes might apply, which could reduce your overall proceeds. If you want some further considerations when deciding where to retire, find out more about the best states to retire for tax purposes.

Home really is where the heart is, and if you’ve lived in a property for a long time, it could be hard to let it go. It can get even harder if you’ve raised a family in a home. The psychological effects of downsizing or adjusting to smaller living spaces are something to keep in mind. While selling your home might make financial sense, the emotional costs might be too much to handle.

When most people think about downsizing their home for retirement, it’s usually to increase their post-retirement income. A bigger home might have been useful for raising a family or supporting your working lifestyle, but once the kids have moved out and your needs have changed, all that extra space might not feel so necessary anymore.

Smaller homes can still offer the comfort and amenities you need to enjoy your life, but they often come with lower utility bills and maintenance costs. On top of that, a smaller place might cost less than what you could sell your current home for, leaving you with extra money to invest in your retirement plans.

It’s not purely financial reasons that could be behind your decision to downsize in retirement — it could also give you the chance to move closer to friends in similar life stages, trade city life for the peace of the countryside or coast, or settle into a retirement community with extra support if you need it.

Buying a smaller home isn’t your only option once you’ve retired — there are various choices available that could make retirement living more affordable and enjoyable.

A condo gives you all the benefits of private living, with the added bonus of community spaces. They can be rented or purchased outright, and come with a landlord, superintendent, or homeowners’ association who will manage different needs of your property.

You might find your condo comes with things like community pools, gardens, parking, and gyms, giving you plenty of opportunities to socialize and stay active. They’re often built near urban areas, so you’ll be close to all the local amenities you could need to enjoy your retirement.

Unlike condos, independent living communities are exclusively for retirees, meaning you can guarantee no young neighbors or families. You’ll be surrounded by people of a similar age, giving you opportunities to socialize and benefit from housekeeping, transportation, and restaurants. Some of these communities also offer assisted living facilities, should you need those services in the future. You’ll still have access to all the amenities, with the addition of caregivers who will regularly come around to check on you and help manage your health.

If you’ve retired due to ill health, or need to leave your home because you can no longer independently look after yourself, a retirement home could be a good option for you. Depending on the level of support you need, these homes can still offer a private living space, but there’ll be staff on hand to offer help and medication when you need it. You’ll also typically have access to shared spaces, activities, and entertainment, while a community of other retirees will offer plenty of chances to socialize.

If you’re considering downsizing your home for retirement, there are a few things you should think about in advance:

Downsizing shouldn’t be a decision taken on a whim. You need to be thinking about it long in advance, ideally a few months before you retire. Talk to a retirement financial advisor about your options, get your home valued, and start to do your research on what’s available in the housing market. This will help you make a well-informed decision and ensure you end up living somewhere you’ll be happy.

Over the course of a working life, it’s easy to end up with a lot of possessions that don’t serve a clear purpose. Downsizing is the ideal time to decide what you really need to keep, and what you can afford to do without. You could donate the things you don’t need to charity, or sell them to add to your retirement savings.

Work out how much you could sell your home for, and how much your new home is likely to cost you. Don’t forget to include realtor costs and closing fees in your calculations. Then, take into consideration the money you already have saved for retirement, and any pension or Social Security you’re expecting to receive. Finally, while it’s not always easy to predict, keep in mind potential health care costs in retirement. This will give you a good idea of how much money you could be living with in retirement, and allow you to work out the kind of lifestyle you could afford to maintain.

Downsizing isn’t the only way to afford a good retirement. With Raisin, you can prepare for retirement with a high-interest savings account, complementing any money you make from selling your home and leaving you with more money to fund your retirement lifestyle.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.