Costs to Consider Before Downsizing

It’s a common bit of retirement advice: Downsize your housing after the kids leave the nest to cut costs. Interestingly, though, many baby boomers have no intentions of downsizing. Nearly two-thirds of boomers surveyed in 2013 by The Demand Institute — a nonprofit owned by Nielsen — plan to “age in place” rather than move, and of those who do plan to move, nearly half said they plan to increase the size of their home or pay more for a comparably sized home.

Many people assume that downsizing housing saves money. But does it really?

It can, especially if you’re able to cash in on the equity you’ve built up. But there are a lot of factors that can actually result in higher housing costs once you downsize. “What we always recommend is to consult with a financial planner to see what your monthly expenses are now and what the expenses may be where you’re thinking of moving,” says Jeff Stone, a seniors real estate specialist in a Port Washington, New York.

Stone points out that the term downsizing can be, well, a bit of downer. “Rightsizing, to me, is a better word,” he says.

Here’s a look at several areas to consider before moving later in life.

Moving costs. When you move for a job, you might get a relocation package from your employer or load the moving truck with help from a couple of able-bodied friends. But when you move during retirement, you bare those costs, which can be considerable if you’re moving a long distance and need to hire professional movers. “Sometimes with the cost of moving furniture, especially if you’re going a longer distance, it can be more feasible to buy new furniture,” says Mario Minotti, a partner at Minotti Group Wealth Advisors in Chicago. (Minotti’s clients are mainly retirees and pre-retirees, so he’s talked through the pros and cons of downsizing with several of them.)

Beyond the cost of physically transporting your belongings, you’ll also pay transaction costs on selling an existing home and buying a new one. ” If [a home is] listed with a broker, you pay their commission and will also be paying your attorney fees, closing costs and so forth,” Stone says. Many boomers also choose to rent, which comes with a different set of costs.

Storage costs. Many boomers have amassed — and grown attached to — large collections of antiques and other mementos over the course of their lives. “There’s china sets, a lot of antiques and family things that they want to preserve,” Minotti says. “A lot of male clients have accumulated a couple of cars, and they’re excited that they’re going to be able to enjoy them [in retirement], but parking spots can be expensive.” Or, in some cases, “their kids had a bunch of their childhood stuff that they want to preserve for their grandkids,” he adds.

One option, if you don’t have space for these items, is renting a storage unit. But it doesn’t come cheap, especially if you want secure, climate-controlled storage for antiques. The average asking rent for a 10 by 10-foot climate-controlled storage unit in the U.S. was $151 per month during the fourth quarter last year, according to the Self Storage Association.

Another option is to sell, donate or give to relatives. Unless you have items that are in demand, don’t count on making big bucks or getting younger relatives excited about decades-old furniture (a notable exception being college-bound or recently graduated grandchildren furnishing a place on a budget). An item may provide “a memory but doesn’t provide value to someone else,” says Chris Abts, president and founder of Cornerstone Retirement Group in Reno, Nevada. “We find many times those just don’t have much in the way of value.” Many boomers also lack the energy or discipline for a serious declutter, which has spawned an entire of industry of senior move managers and organizers for hire. “The key would be to downsize the things you’ve accumulated while you have energy, while you’re healthy,” Abts says.

New furniture. If you’re moving across the country, you might choose to buy new furniture rather than pay to move existing furniture. Or you might realize the sectional from your super-sized living room now takes up too much space, especially if you need to maneuverer a walker or wheelchair around it in the future. “[My clients] find that a lot of their furniture doesn’t even fit,” Abts says, “and [they have to buy] a smaller kitchen table.”

Property taxes. Even if you’ve built up enough equity to buy a new place with cash, you’ll still have to pay property taxes, which could be higher in your new location, even for less space. “You’re probably moving from an old home to some newer community,” Abts says. “Usually your taxes are going to be higher.” Fortunately, some areas offer property tax relief to seniors who qualify, so this is an area to investigate.

Condo fees. If you’re moving from a free-standing home to a condo, don’t forget to factor in condo or association dues. Many senior communities have higher monthly dues or fees to reflect the amenities they offer such as a clubhouse, golf course and pool. “They’re striving for [things to be] convenient, but with that convenience usually adds condo association fees,” Minotti says. However, it still might make financial sense if you plan to use these amenities, and it means you can cut back on other entertainment costs such as a separate golf or pool membership.

Travel costs. If you’re moving away from family, consider what this means for your travel budget. “Is everyone going to come down and visit?” Abts asks. “Do I need to budget for coming back to visit the grandchildren?” And if the kids and grandkids do visit, will you have a guest bedroom where they can stay? Or will they need to stay in a hotel? Minotti says this came up with a client recently who promised to pay hotel expenses for the grandkids and kids, so they could visit.

Money is, of course, a concern as people age, but health and safety are also important considerations. Donna Quinn, who works with Stone as a seniors real estate specialist in a Nassau County, New York, points out that some boomers choose to move into a community they feel is more social and supportive as they age. “A safer environment where there’s people around,” she says, can outweigh any additional financial costs.

Often, downsizing is prompted by a life event such as an injury or the loss of a spouse that requires a fast, usually stressful transition. To avoid this, Abts encourages people to consider their options well in advance. “Do your research before that life event happens,” he says. “Go find those places and determine is that where you really want to go. Most people think they’re going to spend less, but most people find that they spend the same or actually more than they had anticipated.”

More from U.S. News

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10 Tips to Sell Your Home Fast

10 Low-Tax Places to Retire

Costs to Consider Before Downsizing originally appeared on usnews.com

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