Going through years of accumulated possessions and memories is probably not how you envisioned spending part of your retirement. It may sound like a daunting and emotionally draining task, but downsizing could be a savvy financial move, especially if you haven’t reached your retirement savings goals.
Before making any decisions, think about why you want to downsize in the first place. Is it because you want to save on mortgage payments? Or perhaps you want to move to another state for health reasons, tax reasons, or to be closer to family. No matter what your goals are, understanding the connection between them and downsizing will help motivate you to follow through.
Choosing when to downsize is an important decision. One benefit of downsizing early in retirement is that mortgage payments and other related expenses, such as utilities and real estate taxes, could decrease, presuming that you're downsizing to save money. It can also free up your time if you move to a smaller property that requires less upkeep.
On the other hand, there may also be advantages in certain cases to waiting to downsize. For example, you may be timing your downsizing plans for when there is a stronger real estate market to help you sell your current home at a better price. Or perhaps you are waiting for that last child to graduate from college and leave the nest before you move somewhere else.
Before you start boxing up your belongings, run the numbers to make sure the change makes financial sense. You want to make sure that after all costs are taken into consideration, you will end up achieving your financial or other goals. In selling your home you may have costs related to moving your belongings, Realtor commissions, attorney fees and other costs related to your closing. Also, remember if you are buying a different home that you must account for the down payment, home inspection, closing costs and other associated charges. Factoring all the numbers into the equation may reveal whether downsizing makes the most sense for you in your financial situation.
Downsizing may involve not just your home, but also downsizing the stuff you have amassed over time. When purging your home, don't feel pressured to clear out your entire house in one fell swoop. Instead, make a plan to do one room or a section of your home at a time.
Maybe you've determined that not all of your furniture will fit into your new home. Consider having items appraised and selling them online or at an auction house, depending on how many items you are selling and their worth. You could wind up with extra money that could help cushion your relocation expenses.
Once you know it is the right time to downsize, do not wait too long. It is easy to get stuck in the status quo but then deny yourself newer experiences and a more manageable financial life.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.