A smaller home, with
fewer possessions to weigh you down and lower bills to boot: What's not to
like? For many folks, downsizing makes a lot of sense, but there are a few
points to consider.
by: Mike Piershale, ChFC July 13, 2018
Going
through years of accumulated possessions and memories is probably not how you
envisioned spending part of your retirement. It may sound like a daunting and
emotionally draining task, but downsizing could be a savvy financial move,
especially if you haven’t reached your retirement savings goals.
Before
making any decisions, think about why you want to downsize in the first place.
·
Is it because you want
to save on mortgage payments?
·
Are you looking to
free up some cash to help pursue lifestyle goals in retirement?
·
Or perhaps you want to
move to another state for health reasons, tax reasons or to be closer to
family.
·
Maybe you want to move
to an area with a low cost of living (such as these 10 states)?
·
You’re planning ahead,
making sure you will be OK if sometime down the road you can no longer deal
with stairs or have to give up driving.
No
matter what your goals, understanding the connection between them and
downsizing will help motivate you to follow through.
Downsize Now or Later?
Choosing
when to downsize is an important decision. One benefit of downsizing early in
retirement is that mortgage payments and other related expenses, such as
utilities and real estate taxes, could decrease, presuming that you're
downsizing to save money.
It
can also free up your time if you move to a smaller property that requires less
upkeep. In addition, the earlier that you downsize, say in your 60s rather than
your 80s, the less of a toll the move may take on you.
On
the other hand, there may also be advantages in certain cases to waiting to
downsize. For example, you may be timing your downsizing plans for when there
is a stronger real estate market to help you sell your current home at a better
price. Or perhaps you are waiting for that last child to graduate from college
and leave the nest before you move somewhere else.
The Price You Will Pay
Before
you start boxing up your belongings, run the numbers to make sure the change
makes financial sense. You want to make sure that after all costs are taken
into consideration, you will end up achieving your financial or other goals.
In
selling your home you may have costs related to moving your belongings, Realtor
commissions, attorney fees and other costs related to your closing. Also,
remember if you are buying a different home that you must account for the down
payment, home inspection, closing costs and other associated charges.
Factoring
all the numbers into the equation may reveal whether downsizing makes the most sense
for you in your financial situation.
Clear the Clutter
Downsizing
may involve not just your home, but also downsizing the stuff you have amassed
over time.
When
purging your home, don't feel pressured to clear out your entire house in one
fell swoop. Instead, make a plan to do one room or a section of your home at a
time.
Maybe
you've determined that not all of your furniture will fit into your new home.
Consider having items appraised and selling them online or at an auction house,
depending on how many items you are selling and their worth. You could wind up
with extra money that could help cushion your relocation expenses.
Also,
do not be afraid to discard accumulated items that you can't give away or sell.
If they serve no purpose other than taking up space, you might be surprised by
how much room you could free up in your new home by simply throwing these items
away.
One
of the greatest hurdles to overcome in downsizing is separation from items that
have sentimental value, ranging from the house itself to an old baseball glove.
While it can be an emotional experience, it may be time to discard some of
these items, perhaps doing a compromise of keeping some things that will fit
nicely in your new, smaller home while ridding yourself of other items.
And
let's not forget items that you have been storing long-term for your adult
children, like old term papers, books and other items they have never picked
up. We worked with a widower downsizing his home who was having difficulty
getting his kids to pick up old items that belonged to them that he had been
keeping in his home for years. To solve the problem, he got them to agree to
come by on a specific day to pick what they wanted to keep before the rest of
the items were discarded.
Once
you know it is the right time to downsize, do not wait too long. It is easy to
get stuck in the status quo but then deny yourself newer experiences and a more
manageable financial life.
This
article was written by and presents the views of our contributing adviser, not
the Kiplinger editorial staff. You can check adviser records with the SEC or
with FINRA.
About The Author Mike Piershale, ChFC President, Piershale Financial Group
Mike Piershale, ChFC, is president of Piershale Financial Group in Barrington,
Illinois. He works directly with clients on retirement and estate planning,
portfolio management and insurance needs.
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