Downsizing Before Retirement

For those whom retirement is a long way off, it can represent a never-ending vacation, a time free of work and full of play. For others who are closer to retiring, their next chapter may represent an exciting season filled with new and meaningful contributions. Whatever your retirement plans may be, shrinking your domestic footprint may be an important aspect to consider, and you may be surprised why it matters. In this article, we’ll explore some reasons to downsize, and some smart strategies to consider that can help make sure your retired life is everything you’re hoping for.


Home Is Where the Heart Is

When you think of your home, what do you think of first? The sound of little feet racing from room to room? The comfort of a home-cooked meal shared around the family dinner table? In every phase of life, the emotional memories we attach to our most meaningful spaces and places can be powerful.

Sometimes those memories are even strong enough to keep us in a place longer than we might stay otherwise. Many retirees continue to live in too- large homes, despite no longer needing the space, simply because it’s hard to let go.

Downsizing in square feet before retirement has huge benefits, both financially and mentally. If you choose to go with a more modest home, the smaller living space might save you thousands of dollars a year in taxes, utility costs, and insurance costs, not to mention the savings in your personal energy. However, you can still find luxury with a smaller size home. Whether you go more modest or just opt for less space, the upkeep required on a larger home can also take a mental toll over time, so a change in size can help fix that issue.

Downsizing? More Like “Rightsizing”

While you’re working or raising a family, owning a home that’s large enough to accommodate your needs comes with innumerable benefits. However, many of those benefits become burdens after retirement. Still, it’s hard for some to think about shrinking their domestic footprint.

It can be helpful to think of downsizing as “rightsizing,” instead. The end result is typically the same, but conceptually, this can help transform what may feel like a limitation into a positive, lifestyle-affirming strategy. Moving to a home that’s the right size for your retired lifestyle can result in a lower mortgage payment, lower utilities, lower property insurance, and lower overall stress.

After you’ve put in the effort to prepare for an enjoyable retirement, rightsizing your home for your needs can help you truly maximize the positive impact of all your hard work.

Smaller Doesn’t Always Mean Cheaper

Depending on what stage of life you find yourself, it may have been a while since you were in the market for a smaller home.

Interestingly, the national median price for condominiums—which are typically smaller in square footage than standalone homes—is now higher than the median price for single-family houses. However, this needn’t be a barrier to lowering your expenses, if that is one of your goals. You might just need to do a little research before settling on a retirement-friendly home.

Even if you’ve been a homeowner for a while, there are a couple downsizing guidelines to keep in mind. Consider your budget. Where will a mortgage fit in your retirement budget? Are you trying to lower your costs so you can travel more, either to bucket list places or to visit your children and grandchildren more often? If this is the case, you may be heavily weighing the cost of a mortgage. One simple trick to gauge what’s affordable for you is to check out what the payments would be on a 15-year mortgage. If the scheduled monthly payments on a 15-year mortgage makes you a little uncomfortable, you may want to lower the price range you’re looking in.

To find the best mortgage structure for you, consider your income sources and your time horizon. Structure your payment schedule in a way that is designed to work best for you, and don’t hesitate to reassess your home regularly to ensure it continues to meet your needs.

If you choose to purchase outright instead of opting for another mortgage, consider how the lump sum payment will impact your future cash flow. Are you comfortable making that investment at this time?

Needs Vs. Wants: That Old Chestnut

In a world where we’d like to think we can have it all, it’s never fun separating “wants” from “needs.” But when it comes to creating your retirement strategy, it helps to remember that the line between necessity and luxury has shifted over time. These days, people tend to categorize as necessities many things that their parents either never heard of or lived without.

Your idea of necessities and luxuries is highly personal and will most likely be different from those of your friends or neighbors. What one person considers a necessity may be a luxury for another. Even still, as you make these distinctions for yourself, it’s wise to remember that each item or activity one pursues has two costs: the actual cost in dollars and the opportunity cost, or what the money may have earned elsewhere, given the opportunity. By no means should you forgo all luxuries in retirement, simply strive for balance as you carefully weigh your approach.

How Much Is Your Energy Worth?

Rightsizing your life also comes with psychological benefits, as less domestic upkeep can be quite mentally freeing. Cleaning a larger house, keeping up with repairs, and overseeing yard work all require hours of valuable mental and physical energy each week. With less “stuff” to worry about, you’ll have more room to pursue what really matters to you.

It may be helpful to think of your energy like an asset. Assuming you have a finite amount of energy, where would you like to invest that energy to see the greatest return on your investment?

Will you dedicate it to social activities, family visits, or finally writing that novel? For many, retirement is the first chance they have had in decades to dedicate themselves seriously to cultivating a favorite hobby or skill.

Retirement is also a perfect time to reconnect with old friends or further strengthen existing relationships with loved ones. With the daily grind out of the way, you may find yourself reaching out to former classmates or acquaintances you haven’t spoken to in years.

Make It Easy on Yourself

Your retirement should center around enjoying a hard-earned lifestyle you love, not maintaining a living situation that no longer suits your needs and drains your finances as well as your energy.

By preparing now, you can begin working toward a rightsized retirement that’s everything you want it to be–and then some.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on October 31, 2019 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.