Because many Americans hold much of their net worth in a home, home ownership is relevant to many financial planning discussions we have with our clients. As needs change in retirement, people begin to wonder, “Is it time to downsize my home?” It might sound simple — you’re done raising a family or entertaining large groups or needing the space you once did, so you just sell and move to a smaller space. However, a home is more than a building. So the decision to downsize involves more than the practical matter of square footage.
On the other hand, practical reasons certainly do apply. And considering the reasons in advance can make for an easier transition both mentally and emotionally as well as practically. If the possibility of downsizing is on your mind, here are some pros and cons to consider.
Pros to Downsizing
Sometimes bigger isn’t better. And when that becomes true of your home, downsizing your living space might be the right choice.
Less space to maintain = more time
The commodity of time often becomes more valuable as we age. A common reason people choose to downsize is to reclaim time used to maintain a home. Time previously spent mowing the lawn, for example, can become golfing with friends. Reclaiming time might mean decreasing interior space so that there’s less to keep up, or it might be accomplished by moving to a retirement or townhome community that provides exterior maintenance.
If you have established equity in your home, downsizing to a less expensive house can unlock some equity and offer flexibility in your retirement years. That money can then be used to strengthen finances or pursue the lifestyle you want in retirement.
Lessen financial responsibility and minimize stress
Stress can be reduced when downsizing through less responsibility and lower monthly mortgage, which can lead to increased cash flow.
Reducing square footage doesn’t always lead to less cost, but if you’re downsizing financially (i.e., mortgage amount), there is often more savings than just your monthly mortgage payment. In addition to mortgage savings, you might also have more affordable home insurance and lower utility bills. Lowering your financial responsibility can lessen the emotional burden in later life and allows you to prioritize things you value more.
There are advantages to getting rid of possessions that don’t hold meaning for you. Just as reduced space minimizes the responsibility of caretaking, decluttering possessions frees up physical space and can free up mental space, too. The items can be sold for profit, although many people offer items to family members first.
Decluttering also takes the responsibility off heirs and others to go through those possessions after your death. Loved ones dealing with your loss will appreciate not having to deal with a lifetime of accumulated things.
Addressing mobility issues
Aging can bring physical challenges that make it hard to navigate many traditional homes with stairs, narrow doorways and hallways, disjointed rooms, and more. Moving to or building a wheelchair-accessible home can have a positive impact on daily living and health.
Cons to Downsizing
Not only is it important to think through what you might gain by downsizing, but it’s also good to consider what you might lose. So let’s look at the downside of moving and downsizing.
Aging in place
Dorothy said it best: “There’s no place like home.” Home is more than a place, and there are many emotional benefits to living life in a place that holds beautiful memories and offers a sense of comfort and security. Many aging people desire to live in the familiarity and comfort of the home they’ve known. If age begins to restrict daily functioning, in-home care can help people stay in their home.
Losing meaningful possessions
As discussed above, decluttering has many benefits. But downsizing can require you to give up possessions that are meaningful to you. Being surrounded by things that hold memories of specific times, people, and places can provide mental and emotional benefits. Decluttering should be a part of the aging process, but be mindful of the associated memories and choose carefully what you decide to discard.
Less space for hosting guests
Although less space to maintain can mean more time and less responsibility, it can also limit what you do in your home. For example, hosting overnight guests might not be doable if you have a one bedroom + office townhome. On the other hand, multipurpose rooms can always be designed with creativity and functionality to meet your needs. And gatherings can be indoor/outdoor when the weather allows.
Costs associated with moving
Whether you’re moving across town or across the country, establishing new roots can be costly. Moving expenses can range from a few hundred dollars when doing it yourself up to $8,000 if using professional movers. Supplies, cleaning services, moving insurance, and personal vehicle transportation can add to the cost, making moving a steep expense.
The option to give loved ones a temporary landing spot is important to many people. When choosing to downsize, you can lose the ability to house aging or sick parents or children or siblings in need of a short stay.
Leaving lifelong friends and community
Strong friendships are often formed by sharing life. Even if you’re only leaving a neighborhood, you can be leaving behind lifelong (and readily accessible) friends. Beyond that, leaving a town can mean a departure from trusted medical and financial professionals who know the intricacies of your health, life, and finances.
Rise of mortgage rates
If you’re locked into a low mortgage rate from the past few years, it can be painful to see today’s average rate. The savings you get from a lower loan is minimized by higher rates. If the move is for convenience, look closely at the numbers. It might be worth waiting until mortgage rates go down.
Even after taking steps to declutter possessions, living in a smaller space can be a big adjustment. A less spacious interior can feel cramped and congested. Experiencing a small space on a trial basis might allow you to get a feel for whether this will work for you.
You Have Options
The decision to downsize isn’t easy. And it’s a decision that’s not easily undone. If you’re not sure if downsizing is right for you, consider renting out your home. That way you can pursue the downsized lifestyle you’re interested in before making a final decision on selling your home. Go RV’ing for 6 months, travel the world, or rent a smaller home in another city. After a trial period, you’ll feel more confident about your decision to downsize — or not. Regardless of the lifestyle you choose, a home is a wonderful landing place.
Downsizing isn’t automatically the best answer. The decision is very personal and might include input from family members. Sometimes the emotional investment is more important than the financial effect, and we encourage our clients to consider what they value and make decisions from that perspective. If community is a value and you accomplish that by hosting large family and friend gatherings at your home, downsizing might not allow you to live out that value. However, if the size of your mortgage isn’t allowing you to afford the travel you value, then downsizing might allow you to accomplish this. Identifying your values allows you to prioritize the things that bring you the most joy.
A qualified financial planner can help you consider some of the above points as you weigh the pros and cons of downsizing. If you’re a client and want help analyzing the financial feasibility of downsizing, talk to your advisor. If you’re not a client yet, contact us to see how we might be able to help.