Should Boomers Consider Downsizing Before Retirement?
Your kids are grown and you are rattling around in five-bed, four-bath suburban home. It’s not like you see the kids for overnight stays on a regular basis, and so you may be wondering what to do with that extra space.
You could rent out a room, but that proposition seems iffy at best. Really, who wants a stranger rummaging around in the refrigerator for a midnight snack?
The solution for many boomers who are 10 years or less away from retirement might be simple: downsize, especially if you have considerable equity in your home.
Less is more
Moving into a smaller house whether it’s in retirement hot spots such as Florida or Arizona or even your childhood hometown can be beneficial to your bottom line in many ways.
For one, a smaller home likely means smaller utility bills. It’s much cheaper to heat and cool a two-bedroom bungalow than it is a five-bedroom, two-story mansion, notes Ben Garson in writing for Realtor.com (http://tinyurl.com/aobkrzf).
But it isn’t just utilities where you will save. A smaller house means a smaller tax burden and a lower insurance bill. With the housing market still weak in huge swaths of the country and interest rates at all-time lows, you will most likely have a favorable mortgage – that is, if you don’t buy the house outright.
Live long, and prosper
With economists and financial planners in recent years warning of “financial death” – retirees outliving their retirement benefits – going smaller can stave off this possibility as you reach your 70’s and 80’s. If you downsize you might have to live on less than the industry advises because if you’re like the rest of the country their 401(k) plans took a beating when the economy tanked in 2008. Unless you work or worked in an industry with a strong retirement plan – say, railroads or maybe a teacher’s union – you probably don’t have a pension to help support yourself.
If you stave off applying for Social Security benefits at age 62 and instead work longer, it will also help your bottom line when you do decide to kick back.
For every silver lining, there’s a dark cloud
The soft real estate market is a double-edged sword, says The Wall Street Journal (http://tinyurl.com/akepzt9).
Although it’s true you won’t likely pay a premium for a new house, it’s also true you might have a hard time getting a good price for your old home. And if you want to live in a retirement hot spot, you’re going to find the prices higher than in your hometown.
Besides the economic considerations, there’s the emotional side to take into account. Pulling up stakes and selling off most of your worldly possessions is easy in theory – “Do we really need that seashell?” – but actually going through with it is a much tougher proposition – “We got it on our honeymoon.”
Then there are your grown children to consider. Many will resist their parents selling the house they grew up in, and often the kids are more emotionally attached to all that “stuff’ than you are.
Downsizing, obviously, can be a boon for some people, but it’s easier if you’re on sound financial footing before taking that big step.