7 Reasons to Downsize Your Home Before Retirement

Many parents have a lot of emotional attachment to the home where they raised their children.  There are so many memories associated with virtually every room in the home, the yard, the neighborhood.  But the home that was big enough for your family is likely much larger relative to your needs in retirement.  What has been an asset for the past few decades may now be more of a liability which gives rise to the opportunity of turning it into a new kind of asset.  Here are seven reasons to consider downsizing your home:

Significantly reduce maintenance costs.  Step back and take a realistic look at your home.  What does it cost to maintain the home over the course of a year including utilities, yard maintenance, insurance, long-term repairs and maintenance such as painting, roof and systems repairs?  By carefully downsizing you can significantly reduce these costs and thereby increase your retirement cash flow.

Eliminate your mortgage.  When working with clients, one of our goals is to arrive at retirement debt free, including mortgages.  When a client downsizes in preparation for retirement, we have them find a home priced so that the new home has no mortgage.  Being debt-free in retirement eliminates so much financial stress.

Convert home equity into investment equity.  We have a number of clients where they are already debt free and we are able to use downsizing as a way to free up home equity which produces no cash flow and invest the money where it generates cash flow.  Once you are retired, you’ll realize that it’s all about the monthly cash flow!

Be prepared for the next phase of life.  Be very thoughtful about your retirement home purchase.  Kathie and I decided we’d move into the ‘village’.  Village living puts everything at your finger-tips…shopping, groceries, pharmacies, restaurants.  We found one home we loved but it had one significant problem.  Stairs.  Lots of stairs.  You parked in the garage and had stairs to the first level.  And the master bedroom, in fact all bedrooms, were on a second level.  More stairs.  We wanted this move to be our last and realistically, we were one health issue away from having to move…again.  We purchased a home with minimal stairs and all living on one level including a bedroom and bath for full-time help, if ever needed.  Adopt the Boy Scout motto, “Be prepared”.

Create the option of a reverse mortgage. Often people arrive at retirement ill-prepared, financially speaking, for retirement.  By downsizing and being mortgage free, you create what I call your, “Ace-in-the-hole”, the potential for doing a reverse mortgage.  A reverse mortgage allows you to stay in your home but convert it into a lifetime income stream you cannot outlive and there is never a risk to you or your family that the debt on your home will exceed its value.

Establish a new lifestyle.  Downsizing gives you the opportunity to hit the ‘re-set’ button on your lifestyle.  For Kathie and me, village living has been a lifestyle change that we are thoroughly enjoying.  We’ve had clients move to the country; move to the mountains or move to the coast.  Think about what would be ‘perfect’ for you and see if you can find it.

Simplify your life.  As a side-bar to this conversation, don’t automatically rule out apartment living.  There can be significant advantages including all maintenance and amenities and much of your insurance costs included in your rent.  Sure, they can, and will, raise the rent on you over time but you have all of the equity from the sale of your home invested and producing cash flow to help offset rent.  As the property ages, you get to choose to move to the newest best place.  Apartment living can greatly simplify life.

The bottom line is that if you’re now an empty nester, approaching retirement or already retired, thoughtful downsizing of your home can have a significant positive impact on your personal finances.