6 Important Considerations Before Downsizing Your Home

6 Important Considerations Before Downsizing Your Home

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The decision to downsize isn’t always easy. In many cases, you’re not just downsizing your home–you’re downsizing your life. And depending on how long you’ve been in your current home and who shared it with you, you may be leaving precious memories behind. It’s not just a practical decision; it’s emotional, as well.

Still, many of my clients preparing for retirement and beyond plan to downsize at some point. In fact, 46% of baby boomers who sold their homes in 2017 were downsizing, according to data from Zillow.

Indeed, downsizing your home can be financially beneficial in many ways. It may even be necessary as you age. However, everyone’s circumstances are unique. In this article, I’m sharing six things to consider before downsizing.

Before downsizing your home, consider the following six factors:

#1: Financial Impact

As a financial planner, I frequently help my clients weigh the benefits of downsizing versus the cost. Often, downsizing relieves the financial burden of maintaining a larger home. However, there are other expenses associated with moving that can affect your decision–or at least its timing.

First, moving to a smaller home isn’t always less expensive than staying in the home you have now. For instance, you may have paid significantly less for your home than its current market value. Just in the last year, the cost of buying a single-family home in the U.S. rose more than 20%, according to the latest S&P CoreLogic Case-Shiller Index data.

Meanwhile, interest rates are on the rise and may remain elevated for some time. Currently, the average rate on a 30-year fixed mortgage is just under 5.6%, according to data from Zillow. This compares to an average rate of 2.96% in 2021. If you’re planning to finance your new home, you may see your monthly expenses jump significantly–especially if you’ve paid off the mortgage on your current home.

If you plan on moving to an over-55 or retirement community or renting, your monthly expenses may look very different than they do now. Depending on amenities and location, your housing costs could jump to several thousand dollars each month.

Lastly, be mindful of the fees that often accompany moving into a condominium or retirement community. Residents of condo buildings typically must pay condominium or homeowners association (HOA) fees to cover routine maintenance expenses and other property costs. HOA fees can range from $200-$750 per month or more depending on where you live.

Even so, you may find that downsizing still makes more sense financially after running the numbers. For example, after calculating the cost of pool and lawn service, landscaping, and ongoing boat maintenance, one of my clients recently realized they would save thousands of dollars a month by moving to a condo.

The bottom line is: do the math before downsizing to ensure there are no surprises.

#2: Amenities

When downsizing, be sure to identify which amenities are important to you–especially if you’re moving into an apartment, condo, or private community. For example, your current home may have a big backyard or garden. If outdoor space is important to you, make sure your new home has something comparable. Or if you lead an active lifestyle, you may want access to a pool, fitness center, or other recreational facilities.

And local amenities can be just as important as those in your residential community. For instance, you may prefer to have a grocery store, gym, or good restaurants nearby. You may even want to have these places within walking distance if you don’t like to drive.

No matter your preferences, make sure your new location has everything you need and want. Downsizing doesn’t necessarily mean you need to compromise your standard of living.

#3: Neighbors and Community

If you’ve lived in your current home for some time, you may know everyone who lives in your neighborhood or community–for better or worse. As you think about downsizing, be sure to consider who else will be living near you. Indeed, who you live around can make or break your experience in a new home.

This is especially important if you’re considering moving to a private community. The other members of your community are likely to be the people with whom you spend most of your time. Consequently, your time there may be happier and more fulfilling if the people around you share similar interests and values.

#4: Living Space

Of course, downsizing means reducing your belongings and square footage. Nevertheless, your new home still needs to be large enough to accommodate your various needs. As you get caught up in the excitement of moving, be careful not to overcorrect. It may feel like the right move, but if you’re not ready, it can be incredibly costly to get a move wrong.

For example, moving into a two-bedroom apartment can be a major adjustment if you’re used to living in a large house with multiple rooms. If you live with someone, you may want to make sure your new home has a dedicated office or living room so you can both have your privacy when necessary.

In addition, consider whether you’ll be hosting overnight guests and if so, how often. If you have adult children or loved ones who visit frequently from out of town, you may want to make sure you have the space to accommodate them.

Alternatively, you may decide they don’t visit enough to warrant the extra space in your home. (You may even like having an excuse to tell them to stay in a hotel when they visit.)

If your home has been the central gathering place of your family, are you ready for that to change? Is there someone to step in and take your place yet?

#5: Long-Term Plans

Downsizing doesn’t always mean you’ll be moving into your last home ever–but it might. As a practical matter, you may not want to clean a five-bedroom house when four of the bedrooms are empty. Or you may want to move closer to family.

However, you may be moving because you can no longer live as well independently. For example, it may be difficult for you to navigate stairs or shovel the driveway when it snows. Downsizing can eliminate many of the responsibilities of homeownership. Still, if you want to maintain your outdoor space or holiday hosting duties a little longer, you may want to consider outsourcing these responsibilities for a while.

Maybe you anticipate needing more care one day and don’t want to be a burden to your loved ones. Many retirement communities have assisted living facilities and end-of-life care onsite so that residents can transition from one to another as their needs become more complex. While these communities tend to be more costly, knowing you’ll be cared for as you age can be very comforting.

At the same time, moving to a retirement community too soon can also fast forward the aging process for some. It’s helpful to be conscientious of your motives and the potential trade-offs, so you’re as prepared as possible.

The bottom line is that people downsize for a variety of reasons. Be sure to consider your long-term plans–including your potential long-term care needs–before choosing your next home.

And don’t underestimate the cost of a premature move–emotionally and financially. If you decide to pay for extra home services for a few years until the next generation can take over the holiday responsibilities or your friend is ready to join you at the retirement community, it could be money well spent.

#6: Overall Happiness Level

Lastly, don’t forget to consider how downsizing may affect your overall happiness level. Moving to a smaller home often means parting with cherished belongings and memories. In some cases, you may be leaving the home you once shared with your children or a beloved partner. The emotional toll of downsizing shouldn’t be taken lightly.

On the other hand, downsizing can also improve your overall wellbeing. According to one study, people who downsized as part of their retirement plan were ultimately happier than those who stayed put. If you live alone, for example, surrounding yourself with peers may help you find the human connection you’ve been missing.

Downsizing is a personal choice. And sometimes it’s a necessary one. In addition to the logistical and financial considerations, be sure to consider the emotional pros and cons when making your decision.

Consider Consulting a Trusted Financial Advisor About Your Downsizing Plans

In many cases, downsizing is a practical decision. Yet it’s also a financial and emotional decision. As such, it’s important to consider it within the context of your financial plan, including your other financial goals. You may ultimately decide to prioritize other financial needs first. Or you may determine that downsizing can help you accelerate your retirement plans.

A trusted financial advisor like Align Financial can help you evaluate your downsizing plans from a financial perspective. We can also help you identify other life and financial goals and develop a long-term plan for your retirement and beyond. If you’d like to schedule an introductory meeting, please contact us. We’d love to hear from you.

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Tanya Nichols, CFP®
Tanya Nichols is a fee-based CERTIFIED FINANCIAL PLANNER™ professional located in Duluth, MN and serving clients across the country. Align Financial takes a simple but deeply impactful approach to wealth management, connecting your money to your life in a way that feels right to you.

Because Align Financial is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions. Read our full disclosure here.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.