In the first part of our series on “How Much is Enough?” we discussed budgeting for your hobbies. Now, let’s talk about whether or not your current living situation is one that will still fit you after you retire.
A 2024 GOBankingRates survey “found that 51% of Americans plan to downsize in retirement, while 49% do not.” However, downsizing is not without its challenges. According to a 2023 Kiplinger article, “With 30-year fixed interest rates on mortgages recently approaching 8%, many younger homeowners who might otherwise upgrade to a larger home are unwilling to sell, particularly if it means giving up a mortgage with a fixed rate of 3% or less.” This means there’s less inventory on smaller homes that might be more manageable for older buyers.
However, interest rates are not the only thing to consider when thinking about changing your living situation. Here are some other questions you should ask before making a major move:
What Are Your Financial Goals?
Understand your financial goals and how downsizing fits into them. Are you looking to free up cash, reduce monthly expenses, or cut down on maintenance costs? Clarifying your objectives can guide your decision.
What Are the Costs Involved?
Consider all costs associated with downsizing. This includes real estate agent fees, moving expenses, potential renovations, and closing costs. Make sure the financial benefits outweigh these expenses. For example, if you’re envisioning less outdoor maintenance, hiring a lawn service might make more financial sense than making a big move.
How Much Space Do You Really Need?
Evaluate your current living space and how much of it you actually use. If large portions of your home go unused, downsizing to a smaller, more manageable space might make sense.
What Is the Real Estate Market Like?
Research the real estate market in both your current and prospective new locations. Understanding market conditions can help you get the best deal on both selling your current home and buying a new one.
What Are the Emotional Implications?
Downsizing often means leaving behind a home filled with memories. Consider the emotional impact and whether you're ready for such a change.
What Will Your New Lifestyle Look Like?
Think about how downsizing will affect your daily life. Will you be moving closer to family, friends, or amenities? Consider the overall impact on your lifestyle and happiness. Keep in mind that if you’re holding on to an enormous home in the hopes that your adult children will be staying there with your grandkids, it might make more sense to move into something smaller and visit them. They might appreciate not taking time off work and the headache of traveling with small children!
As a financial planner, my main objective is to help you enjoy the present while planning for the future. Part of what we do together is discuss the future you envision and keep that conversation going as your needs and goals change.
Let’s talk about what makes sense for you and your future self so you have the information you need to make an educated decision. CLICK HERE to make an appointment.