Advantages of Scaling Down in Retirement

When examining your financial situation upon retirement, finding ways to save money becomes particularly attractive. Downsizing to a smaller residence is a well-established and favored method for achieving such savings.

When considering reducing your expenses, you likely focus on everyday purchases such as groceries and other items. However, downsizing your home can also lead to a reduction in associated costs like mortgage payments, energy expenses, and maintenance needs. This insight is shared by Realtor.com.

"Moving to a smaller residence usually results in reduced expenses and maintenance. Additionally, there's the possible financial gain from selling your larger property and purchasing a more compact one."

This financial gain arises from the equity in your home. If you've owned your house for an extended period, there's a good chance you've built up substantial equity. This equity can be utilized to help finance the purchase of a new home that better meets your present needs, as Daniel Hunt, CFA at Morgan Stanley, explains.

"For retirees, home equity can serve as a substantial asset, frequently comprising a significant portion of their total net worth. While retirement planning can be intricate, the value of your home equity should not be underestimated."

When the time comes to leverage that equity for your next move, your real estate agent will navigate you through each phase of the journey. This encompasses determining the optimal selling price for your existing home, locating a new residence that meets your changing requirements, and comprehending what you can afford with the current mortgage rates.

What This Means for You

When considering downsizing, pose the following questions to yourself:

• Are the reasons I purchased my current home still relevant, or have my requirements evolved over time?
• Is the amount of space I currently have necessary and desirable, or would a smaller home suit me better?
• What are my current housing costs, and how much do I aim to reduce these expenses by moving to a smaller place?

Next, schedule a meeting with a real estate agent to address the following question: What are the current market options available to me? A local real estate agent can provide insights into your home equity and how it can benefit you in a successful downsizing endeavor.

Bottom Line

Looking to cut costs during retirement? Downsizing might be the solution you need. When you feel prepared, reach out to a local real estate agent to discuss your objectives in this year's housing market.