The pros and cons of downsizing (or moving) in retirement

There are plenty of great reasons to sell your home in retirement, and not all of them are financial. Downsizing can help boost your liquid assets and reduce monthly expenses while opening up new opportunities. It may also impact what you leave to your children (and how).   If you’re thinking about selling your home in retirement, consider the following.

1.     What are your goals?

Selling a major asset can open a number of doors, financially speaking. Assuming you have equity in your home, selling it gives you an influx of cash to invest, enjoy, or pass to your heirs.

Think about how you hope to spend your next few decades and what you hope to leave to your family when you’re gone. Doing so can help you determine what to do next.

2.    Where would you move?

This question may seem deceptively simple. However, the more specific you can be about where you want to move, the better. Consider home prices in the areas you’re looking, as well as how prices have changed over time. Make sure you look at property taxes, as well—both the current rate and how the state and city governments calculate those taxes. (This is particularly important if you’re considering a long-distance move.) Home prices, property taxes, and the general cost of living in a new location can make a big difference when you’re living on a fixed income in retirement. This tends to be true regardless of whether you buy or rent.

Don’t forget how different where you are looking at moving is relative to where you are currently living. If you live in San Diego now, you may want to test out the new location before making any hard to change decisions. Don’t forget that bugs and bad weather are a thing in other parts of the country.

3.    Would you buy or rent?

What are home prices in the areas you’re looking? Would you need to take out a mortgage to afford that property. If so, consider current mortgage rates and what your new monthly expenses might be. Mortgage rates topped 7% in 2023 and 2024, the highest they’ve been in more than 20 years.

If your updated expenses would be higher than your current expenses, moving may defeat the purpose of downsizing, from a financial perspective, even if you’re moving to a smaller residence.

Finally, consider renting. You may be able to take the equity in your home and invest it. If you plan to leave the bulk of your wealth to your children, liquifying a major asset may help you begin to share the wealth as you age. One major perk to this approach? You can see your family enjoy what you hope to pass on.

On the other hand, renting introduces an element of uncertainty to your retirement: You can’t be sure what your rent will be several years from now. Rent increases could have a big impact on both your cash flow and your overall nest egg.

A financial advisor can help you walk through these different considerations in light of the current market, economy, and your personal goals. They can also help you weigh these questions against the alternative: Staying in your home as you age.

Questions about which path makes the most sense for you and your family? Contact us.

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