When you’re graduating into the next chapter in your life, there are going to be a lot of large changes you need to be prepared for. As an empty nester with children who have grown up and started their own families, and a retiree with less of a steady income, downsizing your living arrangements may be something you need—and want—to do.
Here are a few things you should and should not do when thinking about downsizing. For more details on this topic, check out this free podcast episode.
1. Do start planning three to five years in advance.
If you’ve been in your home for 20, 30 or even 40 years, there are a lot of things you need to take care of before you can think about selling. For one, you have rooms filled with furniture, memories and miscellaneous stuff that you need to sort through. Plus, your home probably has features that are outdated and may need a face lift in order to maximize your selling price.
Starting to think about the next steps early gives you time to sort through all of your belongings, divvy up heirlooms and valuables between your children and other relatives and make some needed updates and repairs to the structure and appliances within your home.
What you don’t want to do is throw everything into a storage unit to figure out later because you’re in a rush to sell. You’re only putting off the inevitable, adding to your expenses and increasing your workload in the future. Instead, start early so you can relax in retirement and focus on activities you’d rather be doing than cleaning out a storage unit.
2. Do explore different housing options.
There are so many different types of homes to consider when you’re retiring. How many bedrooms will you need? Do you want a stand-alone home or a condo? What kind of community do you want to live in?
Think about the different options—ranch-style house, condo, apartment, 55-and-older community, continuing care retirement community—and determine what is best suited for you now and in the future.
3. Do consider your geographic options.
Determining where to live requires multiple considerations. Do you want to be close to family? Do you prefer a warmer or cooler climate?
An important consideration when thinking about locations is taxes. Does it make sense for you live in a state with higher property and income taxes or should you move somewhere with low or no state taxes?
4. Do understand all aspects of financial independence.
Before you make any decisions, make sure you have a team of advisors working with you to help determine what actions make the most sense for your future. Having financial, tax, real estate and mortgage advisors working together will ensure you’re getting well-rounded advice that will work best for you.
When you’re thinking about downsizing, understanding the effects of taking out another mortgage, selling your current home and potentially reducing your income by giving up your paycheck will have huge impacts on what you decide to do next.
1. Don't underestimate the impact of aging.
It’s hard for all us to see ourselves in the future struggling to walk up a flight of stairs, but that may be a necessary consideration someday.
Living in a two-story house may not be the best decision down the road, so thinking about a one-level home is a good idea. Think to the future when making these decisions so you don’t have to go through the trouble or expense of moving again.
2. Don't overestimate your finances.
Sure, you can afford to live in the big house with the high property tax now. But you’re also getting a weekly paycheck. Remember that in retirement, you may not have the same disposable income as you do now. Recalibrate the value of a dollar when you’re no longer earning a paycheck so you don’t overestimate your spending power and go into debt.
3. Don't keep your plans a secret.
No matter how you think they’ll react, make sure your kids and other family members are aware of your plans so there are no surprises. Downsizing may mean getting rid of their childhood home, so they may need time to prepare for it emotionally just like you do.
What we have and need now may not be the same as what we’ll need in the future. Thinking about downsizing into a smaller home and living off different sources of income are big steps in your retirement planning and should be thought through thoroughly and with the help of professional advisors.