6 Things to Consider When Downsizing Your Home in Retirement

Posted September 30 2016
by PenFed Team
older couple

If you’re heading into retirement, you want to make the most of your fixed income. One common strategy is to downside your living space. If you sell your home and move into a smaller space, you can conceivably cut your monthly expenses and grow your nest egg at the same time.

But downsizing isn’t always the smartest financial move. Here are six questions to ask yourself before you put a for sale sign up in the yard.

1. What’s Your Budget?

The first step to any financial plan is deciding how much you have to spend. What can you reasonably pay every month for a home? Even if you intend to use the proceeds from selling your home to pay for a new one, you’ll need to consider what you’ll earn from the sale to spend on that dream home in retirement.

And don’t forget to consider related expenses like insurance, property taxes, and utilities. Because these can be higher or lower in different areas, you want to work out an affordable budget—and research these costs on your next home to see if they fit that budget.

2. How Long Will You Stay?

Like any housing situation, how long you intend to stay in the home will have a big impact on your budget. If you intend to buy your next home, closing costs mean you may lose money on the house if you only stay a few years, before you’ve had a chance to build equity.

If you do not plan on staying in one place, renting may be a better financial option.

3. What Are Your Housing Needs?

As you get older, your needs will change, and it’s important to consider them when you’re looking at your next home. Remember, you may be retired for 20 years or more—so you either need to find a space that can suit your changing needs or be prepared to make another move or two.

If you’re looking for a home to last your entire retirement, you’ll want to look for a home that’s easy to get around in. That likely means you’re looking for a home without stairs that’s handicap accessible, so you can navigate it even in your later years. Another consideration is proximity to amenities: from medical and airport facilities, to shopping, to recreation—so you can have access to them even if you can no longer drive.

4. How Much Would You Make From Selling Your Home?

While many retirees look at selling their home as an opportunity to cash in, you may make less than you think. Depending on where you live, your home may be difficult to sell or not sell for as much as you want.

On top of that, there are a number of costs involved with selling a home, including real estate agent commissions, closing costs, and the price of packing and moving. If the home you plan on buying needs some work, you need to consider the cost of remodeling, too.

5. What Will It Cost to Live in Your New Home?

Living in a smaller space won’t necessarily cost you less. If you plan on moving to an urban area with a higher cost of living, even a small space could outstrip your housing budget. Even if you buy your next home outright, you may find higher property taxes and everyday expenses are strains on your finances.

6. When Is Downsizing Your Home Right for You?

While your finances are important, retirement isn’t all about the numbers. Even if you would save a bundle moving into a suburban studio apartment, it may not be the best fit for you. If you enjoy the cultural activities of the city, the suburbs may not suit you—and you could end up spending more on transportation to get around. If you’re used to having a home office or craft room, but are downsizing to a single bedroom, you may feel cramped without space for your hobbies.

Before you sign on the dotted line, give your next downsizing housing plans a trial run. Try living in a rental that’s the same size as the home you think will meet your needs in retirement. If the small space makes you miserable, you may want to reconsider. If you’re considering a move to a new area, be sure to spend time there beforehand to be sure it’s a good fit for the lifestyle you want to enjoy.

PenFed Has Great Financing Options

Whether you’ve found the perfect home to buy that meets all your lifestyle criteria in retirement, or you would like to refinance to lower your monthly costs, PenFed has a variety of mortgage financing options available. Visit PenFed’s online Home Ownership Center today.