What to Consider Before Downsizing in Retirement
Many new retirees find that they are house-rich and cash-poor. Those retirees spent their working years paying off the mortgage, and now that they have stopped working they need a way to turn their investments into a steady stream of cash.
Downsizing to a smaller property and investing the extra cash is one way to make ends meet in retirement, but there are a number of things to consider before taking such a big step. Here are four important things to consider before downsizing in retirement.
Moving and Storage Costs
Moving to a new home costs money, and you need to budget carefully for those expenses. Whether you are moving across town or across the country, you will need to pack up your possessions and fit them into a smaller and more affordable home.
In addition to the moving costs, you may need to budget for the cost of a storage unit - either on a temporary or a permanent basis. Downsizing to a smaller home will leave less space for storage, and you will need to think about what to do with all your possessions. If you don't mind letting go, you can simply have a yard sale and be done with it. If you are dealing with items that have an emotional attachment, you may have to shell out considerable cash to keep them safe.
The State of the Real Estate Market
If you are lucky enough to retire at the top of the real estate market, downsizing is likely to put a lot of extra cash in your pocket. But what if you retire on the cusp of another housing crash? It is important to consider the state of the real estate market, along with your outstanding mortgage balance, before downsizing to a smaller residence.
It is also important to think about what you will do with the money once the sale is finalized. Do you have a plan for investing the money and boosting your retirement income, or do you have no idea what the next step will be. If you do not yet have a plan for investing the money, it may be best to stay put while you educate yourself and develop a post-retirement investment strategy.
Family ties often keep us in one place even when we would rather be living somewhere else. That is true of retirees as well, and you will need to think carefully about family ties and how things might change after you retire and downsize to a new and smaller home.
If you plan to downsize to a new town or move to another part of the country, you will also need to budget for additional travel costs. The family gatherings that were once just a short car ride away may now involve plane tickets and rental cars. Those additional costs can really add up, and they should play a role in your downsizing decision.
The Total Cost to You
If you are thinking about downsizing your life after retirement, it is important to add up all the costs and think about how much you will really be saving. From the additional cost of travel and plane tickets home to the price of the moving van to get you to your new location, you will need to budget for all these items.
If the numbers add up and you come out ahead financially, so much the better. If not, you may need to rethink your downsizing plans and look for other ways to boost your retirement income and get more out of your post-work life. For more information on these and other important factors which influence the choices you make in retirement contact Paul Miller at Indian River Financial Group today.