What is downsizing?
Literally speaking, downsizing means to make something smaller. When you’re talking about downsizing your home, this means moving into a smaller space, something that’s often done when people reach retirement age.
You may find that as you get older, a bigger property becomes too much to handle. If you're an empty nester, you may have a large amount of unnecessary space which you now no longer need. Perhaps most importantly, the equity in your home could form part of your financial plan for retirement. As a result, many retirees choose to sell their home to access this equity and live somewhere smaller with fewer expenses and easier property management instead.
There are lots of things to think about when it comes to downsizing, as it’s a decision that requires careful planning and consideration. However, if it’s right for you, it could provide you with a fresh start as you enter this exciting stage of life, as well as a financial boost to help you live the retirement you've always wanted.
Pros and cons
One way to decide whether downsizing could be right for you is to look at a list of pros and cons.
Pros
- You move closer to better or more relevant medical care.
- Being mortgage-free in your retirement years could provide you with the financial ability to live the life you want.
- Downsizing may allow you to move in with or be closer to family.
- Depending on where you move, you could relocate to a better climate.
- Moving into a smaller home could allow you to live in a location you wouldn’t have been able to choose before.
- A move to somewhere smaller could result in less to take care of and worry about.
Cons
- You find change is harder as you get older, and may struggle emotionally with the move.
- The move itself could be a physically, mentally and emotionally stressful time.
- If you’re moving to a new neighborhood, it may be overwhelming to get used to a different area.
- If moving somewhere unfamiliar and away from loved ones, you could experience loneliness and isolation as you adjust.
- You may experience feelings of resentment if you’re feeling “forced” to downsize due to financial pressures.
- If you’ve been in your current home a long time, you may feel settled in and experience discomfort or buyer’s remorse when moving to your new home.
How to downsize
If you’ve decided that downsizing might form part of your retirement plan, now you’ll need a plan to sell and list your home, and find somewhere new to live. Things to think about include:
Decluttering
When it comes to decluttering your home, it’s a good idea to start sooner rather than later. As you start going through your things, you’ll get an idea of just how much furniture and other items you want to bring with you.
You should go through your belongings thinking not only about what suits your life now, but how or if it will suit your new space and lifestyle in retirement. If there are things that can’t come with you or no longer feel suit your new space or lifestyle in retirement, decide what to do with these.
If you’re hesitant to throw things away, you could consider having a garage sale, donating items, selling them at an auction, gifting to family and friends or putting them in storage.
Getting ready to sell
You may decide you need to do some work on your home to get top dollar when you sell. If that’s the case, you’ll need to factor in the time and costs associated with any renovations and repairs.
You’ll need to factor in closing costs, home inspections, legal fees and other expenses that will impact the total profit you make from the sale of your home.
Getting ready to move
If you’re buying a new home, you’ll need to factor in the associated costs as well as any ongoing maintenance fees. An important part of your retirement plan is having a budget, so you’ll need to determine monthly income needs in your new home.
When it comes to physically packing up your home, you could ask friends and family to help, or pay movers to do this for you. This might be preferable if you’re moving in the colder months, or if you’re worried about injuring yourself by lifting heavy boxes and furniture.
Moving can be a stressful experience no matter what stage of your life , especially if this could be your last move, or if it means leaving a home you’ve been in for a long time. Remember to take care of your mental well-being during this time, and talk to friends and family about how you’ll cope with this change.
Downsizing mistakes to avoid
There are many benefits to downsizing, but there are also some mistakes to avoid, including:
Not having a financial plan - Once you’ve sold your home, make sure you discuss how you’ll use the money from the sale. You may want to invest more, pay off debt, use the money to pay for travel or other activities and ensure you have a retirement budget in place that includes your new living expenses.
Downsizing because you feel you should - Make sure you’re planning this move for the right reasons. You may feel pressure if you’re reaching retirement age to downsize or to follow in footsteps of friends or family who’ve done the same. Make sure you speak to your loved ones and make the choice that’s best for you, factoring in your health and well-being, financial situation, social life and family commitments into your decision.
Trying to go it alone – It’s natural to have concerns when deciding if downsizing is the right move for you. Speaking with family and friends can help you see how moving would impact your lifestyle. If you have questions about the financial side of things, such as how to access equity in your home to help pay for retirement, an advisor can help.