Should you be downsizing your home in retirement?

SHOULD retirees downsize their homes? The answer is dependent on a number of factors. Downsizing refers to the practice of trading a larger home for a smaller one that costs less and has lower maintenance costs.

According to a 2018 study by TD Ameritrade, 42 per cent of Americans plan to downsize their homes in retirement. In Jamaica, downsizing is an option that many consider when nearing retirement or while in retirement.

Factors to consider in downsizing:

1. Will downsizing save money? Most retirees live on a fixed income in retirement. Downsizing provides retirees with additional retirement income by reducing associated expenses such as property taxes and utility costs. The money you save can provide additional funds to do the things you could not do while you were working.

2. Do you still need the extra space? Maintenance costs can be very high. You may consider renting your home, moving into a smaller dwelling, and saving or investing the extra income. Another option worth examining is renting a part of your dwelling. Retirees may also opt to move in with an adult child.

3. Mobility issues: Is that two-storey home still practical? Will you still be able to climb those stairs? Do not just consider your present situation. Factor in your mobility in the years to come.

4. Moving and selling costs: Calculate the upfront cost of moving. Selling property can be expensive. Some retirees have to refurbish their homes prior to selling in order to get the best price.

5. Debt reduction: If you are struggling with huge debts and high mortgage payments, downsizing your home can provide the funds needed to pay off ballooning credit card debt; paying off mortgage or reducing mortgage payments, and clearing indebtedness.

6. Increase cash flow for your emergency fund. The less you spend, the more you will have to save and invest.

7. Emotional ties: Your home may hold lots of treasured memories. The emotional attachment to the family home, makes it difficult for some retirees to downsize. Consider the practical benefits of downsizing. A less expensive home may reduce stress and boost your retirement income.

8. Long-term health care. The proceeds from the sale of a larger home can provide much-needed funds for long-term health care.

All factors need to be carefully examined in arriving at a decision to downsize your home in retirement. Funds saved from having lower maintenance costs can be used for travel, recreation, and also contribute to a better quality of life in retirement.

It is important for retirees to engage licensed real estate agents whose focus is on service delivery rather than selling price. As most retirees are living longer, investment risks need to be assessed as sound financial advice is needed at every stage of life. Retirees, therefore, should seek the services of a licensed financial advisor who can competently provide financial strategies in a complex and dynamic retirement environment. Long-term care, estate planning, and wealth creation are key areas of focus for retirees. The needs are diverse and there is no “one-size-fits-all” solution. Therefore, a holistic approach is to be considered in making the decision to downsize your home. The quality of life you desire in retirement will give the peace of mind that you seek. There is no price tag to that endeavour.

Grace G McLean is financial advisor at BPM Financial Limited. Contact her at gmclean@bpmfinancial.com and visit www.bpmfinancial.com.

Grace is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com.

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