Last Updated on September 18, 2024 by Luke Feldbrugge
Downsizing for retirement is about freedom. It means freedom from your work life. Maybe it’s time to free yourself from some of the things you’ve accumulated over the years, and really prioritize what’s important to you. Maybe downsizing your home is part of the plan? You’ve probably been planning for your retirement for years. Now is the time to put those plans into action.
Just because Thoreau told us to “simplify, simplify” doesn’t mean that it’s easy. But the downsizing process and moving into the retirement phase of life is a lot like reinventing yourself. And making a new life for yourself can be a very exciting, positive experience. It does, however, involve a lot of major decision making.
Advantages of Downsizing for Retirement
When downsizing your home for retirement, there are certain benefits that are good to keep top of mind. A downsized life can have both financial and time-saving advantages.
- Cash in your pocket – Selling your house can result in a windfall of cash that you can save as part of your nest egg or use for travel and vacations.
- Mortgage payment – A smaller house typically means a smaller monthly payment. That can boost either your retirement fund or your travel budget.
- Maintenance and Cleaning – Depending on where you move (e.g. condo or townhomes or retirement community), delegating some your home maintenance to a 3rd party can be a big lifestyle change. A simpler, smaller house is also easier to clean, cutting down on chores that burn time.
- Utilities – Smaller houses often mean lower utility bills, e.g. water, electricity, heat, sewer and trash collection (and maybe property taxes).
Where to Move When Downsizing for Retirement
Choosing where to live may seem like a huge decision when downsizing for retirement. Considering the size of the U.S., there are really only three choices:
- Closer to family
- Someplace warmer
- Someplace warmer AND closer to family
We kid. You have plenty of options, but those are the top reasons cited by the majority of seniors and retirees. Maybe you want to stay where you are, if you are already close to family, but just want to downsize to a smaller home. Maybe you want to move to a favorite vacation destination. It really comes down to prioritizing what’s important to you.
Home Options When Downsizing for Retirement
We know we want to go smaller, right? If we are downsizing for retirement, a smaller house is going to be part of that new life. If it were just a matter of less square footage, it might be simpler, but there are a lot of options out there for retirees who are downsizing.
For example:
- Condos – The go-to option for a lot of retirees. You still get to own them, build equity, but you don’t have all the maintenance to worry about. As downsizing goes, this option can be a dramatic reduction in your stuff.
- Mobile Living – For the adventurous retirees who want to hit the road (via an RV) or hit the water (in a houseboat). As lifestyle changes go, this one is really out there.
- Townhomes – Give the convenience of a condo, but you have more living space and it kind of looks like a regular house.
- Retirement Communities – Similar to townhomes, but your neighbors are all retirees like you. Sometimes these communities are a group of senior apartments with shared dining halls, courtyards, swimming pools and optional housekeeping. Many of these also have a raft of social activities. If you want to live independently, this is a good option.
- Assisted Living – Means you have care available in terms of personal assistance, but medical care is not built into the model (RN, doctors, etc.)
- Long-term Care Facilities – Give older adults a place to live and access to healthcare professionals.
There are many variations of these types of homes, and a wide range of services available. As you get further into retirement, healthcare may become more necessary, and you may need to look into housing that offers less independence but more medical assistance.
When you are searching for a new place, especially if you are going from a large home to a smaller house, check out an “Aging in Place” checklist.
This will help you judge a house based on your ability to live there comfortably as you get older. There are some surprises here. Did you know that the way the walls are painted can help retirees navigate the house by enhancing depth perception? If you don’t want to do this yourself, you can hire professional help — an inspector who specializes in “age in place” elements in a home.
Helping firefighters, EMS, law enforcement, military veterans, healthcare professionals and teachers find their next home is something Homes for Heroes specializes in. And, if you work with our local real and mortgage specialists to purchase a new home, you can save an average of $3,000!
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Selling Your House to Downsize for Retirement
Once you commit to selling your house, the timer for downsizing for retirement starts ticking for real. At the same time you are trying to find your new place, you will need to start packing up your old home. That will light a fire under you in terms of deciding what to do with all your stuff.
The good news is that it’s a sellers’ market right now. The down side is once you sell, you will enter the sellers’ market as a buyer, and the home prices have risen pretty dramatically over the past couple year.
That said, home prices have leveled off recently and the experts are projecting a stabilization with minimal increases in 2024. That’s good news if you need to purchase another home.
Capital Gains
In most cases when you sell your home, you don’t have to worry about the capital gains tax because the allowances are pretty high. But if you’ve been in your home for a while, it may have appreciated considerably, especially over the last three years during the real estate boom.
Currently, your can be exempt from capital gains taxes on the first $250,000 if you are single, and $500,ooo if you’re married and file jointly. And, we must always say, please consult with your tax professional to understand your personal situation. If it looks like you might owe some capital gains’ tax, you might want to add a tax professional to your real estate team.
Medicaid and SSI
When you sell your current home and buy a new home, you may have some extra money left over. In some cases, quite a lot of cash. This is another example where you may want a financial advisor to assist you. You don’t want to lose your Medicaid or Social Security benefits due to the large cash flow infusion.
Downsizing Your Stuff
Downsizing in retirement also means you will need to have a heart-to-heart with your possessions, meaning all of your stuff. This is not an easy task for most people.
You have a few options in terms of how to downsize your belongings:
- Donate them to places like Goodwill, the Salvation Army, a local thrift store, or sell them to a consignment store
- Give them to family members
- Freecycle them
- Sell them via a garage sale, yard sale, or moving sale
- Toss them
Are there certain items you should focus on when you are deciding what to get rid of? Here are some options for downsizing your stuff.
Car – If you’ve got more than one, you could save a lot of money by downsizing to a single car.
Kid stuff – Time to gather the kids and tell them to retrieve their hockey gear, fishing tackle, camp memories, school books, etc.
Old furniture – If it’s worn out or your just tired of it, it can go. Make an exception for old furniture with sentimental memories, family heirlooms, or pieces with collector’s value.
Holiday decorations – These add up over the years and you will be decorating a much smaller space next holiday season.
Bags and luggage – Purses, miscellaneous bags and luggage can be purged, especially the old stuff. Keep the new stuff if you are going to do some traveling.
Sports equipment – Ask yourself when was the last time you used that elliptical, barbell, etc. and you will know what to do.
Knick Knacks – Over time, these multiply. You may need to get tough on these. There’s likely a lot of them and many don’t make sense anymore.
Electronics – It’s amazing how electronics like TVs, tablets, e-readers and laptops go out of date so quickly. Some thrift shops may take them as donations. Otherwise, these qualify as electronic waste, so it might cost some money to recycle them.
Books and magazines – ”I plan to read these someday” may not be your current perspective. Separate your reading materials into a small pile of things you will read or reread and another pile of publications you will say goodbye to.
Linens – If you’ve got a lot of old bed linens and towels that you’ve meant to get rid of, the time is now. You might also be downsizing the number of beds you have in the new house, as well as the number of bathrooms.
Fine China – The next generation of young people have made it clear that they don’t want grandma’s fine china, so you may want to sell it, or donate it to a good place that will use it.
Crystal – What’s true for your fine china may go for your fine crystal.
The Emotional Baggage of Downsizing for Retirement
Let’s not pretend this is just a simple exercise in rational decision making. There’s going to be a lot of emotional factors and sentimental feelings associated with these decisions about your things. It’s in your best interest to give yourself time, if you can. Don’t do too much in one day. It’s exhausting. Get help from family or friends if they are willing and able.
Storage Units are Always an Option
Think of the storage unit as a potential anxiety reducer. Whether in a facility, or in the driveway of your new place, the storage unit is a good temporary solution when downsizing. Over time, the storage costs can add up. But in the short term, it can take a lot of pressure off of you as you are downsizing – especially if you have a lot of stuff in limbo (i.e. if you’re waiting on someone, or if you’re undecided what to do with it).
Receive an Average of $3,000 from Homes for Heroes
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It is how Homes for Heroes and our local specialists thank community heroes, like you, for your dedicated and valuable service.
