For empty nesters and retirees who still have a mortgage and a house to maintain, downsizing can reduce one of their biggest fixed expenses, help stretch their retirement budget at a crucial time, and ensure they don’t outlive their savings.
According to a recent survey by the Demand Institute, more than 40 percent of Americans ages 50 to 64 plan to move within the next five years. Many of them will opt for a smaller place with the goal of saving money.
“There are many folks out there feeling the pressure of having not made a lot of money in the (stock) market over the last decade. They feel like they are behind in their retirement savings. For them it may feel like a need that they have to downsize,” said Tim Maurer, vice president of the Financial Consulate, a fee-only financial planning firm near Baltimore.
(Read more: Investment Tips For Your Retirement)
Maurer tries to encourage his clients to view a potential move to a smaller home or scaled-back lifestyle as an adventure.
John and Carol Rhoder, both 69, have done just that—embarking on a new way of living permanently in their favorite vacation destination. When they retired, they calculated the cost of living in Florida, where they visited the beaches many times, and decided to buy a home in Longboat Key near Sarasota.
“Financially, Florida is a very easy place to live. First of all, it’s a no income tax state. Number two, the living arrangements down here and the cost of living down here is a lot less,” said John, a retired hospital administrator.
Carol, a retired psychologist, agrees. “We still live the way we lived in New York. It’s just easier,” she said. “We go out for dinners and we travel and all that. It’s fine. It’s like living on vacation.”
The Rhoders said they have significantly reduced their debt after selling their 80-year-old home in New York and moving to Florida. They now live more comfortably on a fixed income, with no mortgage or car payments.
Older homeowners who become attached to their family home, neighborhood and lifestyle may not want to consider downsizing. It also doesn’t always save money. You have to factor in selling costs, including commissions and moving expenses, as well as the costs of buying or renting a new home, buying new furniture and maintaining your new property. Also, if your home sells for less than you bargained for, you may be further behind.
If you’re trying to downsize in the same area where you are currently living and just change your lifestyle a little, it may be more difficult to see the savings.
“Nobody really wants to retire into an existence that isn’t really financially comfortable or is really tight and so I would recommend a strategy of considering moving life entirely to a lower cost of living area where you don’t have to scrimp for any penny and you can still enjoy a more comfortable financial existence,” Maurer advised.
Consider how you could live a “downsized” lifestyle before you’re forced to do so. And remember downsizing isn’t just about your real estate—it’s about adjusting your cost of living.
—Follow Sharon on Twitter @sharon_epperson