If you’re thinking of moving during retirement, it is likely to a smaller place. 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.
But before you sell off extra furniture and downsize, it’s important to note that less home doesn’t always lead to an ideal solution. You might find unexpected financial and emotional challenges after making the switch.
[See: 10 Ways to Reduce Your Housing Costs in Retirement.]
Here are some of the most common misconceptions surrounding downsizing during retirement. Read on to learn the realities you might encounter when you reduce square footage during the golden years.
Selling will lead to a substantial windfall. If you have a large home and no mortgage on it, or you have paid off most of the mortgage, it’s easy to think the proceeds from the sale will be high. But putting up a “for sale” sign doesn’t always guarantee a quick bid. “It may be harder to sell your house than anticipated, especially if it hasn’t been updated in a while,” says Roger Young, a senior financial planner at T. Rowe Price in Owings Mills, Maryland. You might have to fix up bathrooms or put in new flooring to make the home more attractive to buyers. The cost of renovations will reduce the net amount you receive when the home sells.
If you don’t invest in updates before selling your home, you might have to reduce the sale price. This also will lead to a lower windfall than initially expected.
A smaller place will reduce living expenses. If you’re leaving a rural setting and moving to a city, real estate prices may be steep, even for places with less space. Condos or apartments might include charges for ongoing services such as yard maintenance, use of the pool and golf courses, or a homeowners association fee. “If you’re building a new home, be wary of costly change orders that can increase the price dramatically,” Young says. Customizing the kitchen or upgrading the carpet can lead to a higher final payment.
Also check property taxes in the area you plan to live. Since these vary in different parts of the country, you could end up paying thousands of dollars more for property taxes in the new, smaller place.
Everyone in retirement should downsize. While most retirees consider moving at one point, it’s important to evaluate your own situation before making a change. “If you don’t have financial or health concerns about your current home, there may not be a reason to downsize in retirement,” says Tony Drake, founder and CEO of Drake & Associates in Waukesha, Wisconsin. You might be more comfortable in the large home, especially if you’ve lived there for years and are familiar with where everything is. If you enjoy hosting frequent dinner parties or card groups, staying in the bigger place might make sense.
[Read: How to Decide Whether Downsizing is the Right Choice for You.]
Downsizing is the only way to boost your finances. If you want to reduce your living expenses, you might be able to do so without leaving the larger place. Start by brainstorming ways to cut costs. If you had a landscaping service keep up your lawn while you were working, you might now be able to care for the yard yourself with the extra hours. If you install a smart thermostat, you can program the temperatures you want to have at certain times in the home. When you travel or are gone during the day, you can adjust the temperature setting to save on energy bills.
Then look for smart ways to use your space to generate revenue. “You can use your current home to create some extra income by renting out a room,” Drake says. Ask your children and grandchildren, as they may have friends who are looking for a place to stay. Those who live in the extra room might also help with strenuous home maintenance chores, saving you the cost of hiring a company or contractor to do the work.
The extra space won’t be missed. Switching from life in a 4,000-square-foot home to a 900-square-foot place can be more difficult than expected. You might find certain issues with tighter spaces, such as not having enough bedrooms for grandkids who come to visit or less room to display your family heirlooms. Instead of drastically scaling back on size, you might be happier in a space that is smaller than your family home, but large enough to entertain. “If family or friends live out of state, it is not uncommon for retirees to ‘downsize’ to a home that still has enough room so everyone can stay together, even if it only happens a few times per year,” says Kristin McFarland, a wealth advisor at Darrow Wealth Management in Boston.
[Read: 7 Tricks for Downsizing Your Clutter.]
I can bring in cash for extra household goods. If you plan to sell extra furniture, antiques or china to help cover moving costs, be careful not to overestimate the proceeds. With an increasing number of boomers retiring, the supply of antiques and collectibles has greatly increased, bringing the price of some of these goods down. “For items where the perceived value is sentimental and age-based over function, it may even be difficult to donate certain items,” McFarland says.
If you have unique pieces but aren’t sure of their value, evaluate them before having a garage sale. “Consider consulting an appraiser and exploring options to donate or sell fine collectibles or antiques,” McFarland says. You may find they are worth more — or less — than you originally thought.
More from U.S. News
10 Tips for Finding a Great Place to Retire
Retirement Dream Home Mistakes to Avoid
The 10 Most Unaffordable Places to Rent an Apartment in Retirement
6 Downsizing Myths to be Aware of in Retirement originally appeared on usnews.com
