Downsizing your home in retirement: how do you do it, and what are the benefits?

1 min read by Unbiased team Last updated June 28, 2024

Discover helpful advice on transitioning to a smaller home and the surprising benefits you could experience through the process.

Summary 

  • Almost 40% of US citizens move to another home after retirement. 

  • Many people downsize in retirement to cut expenses and live a less stressful, more fulfilling life. 

  • Retirees often downsize to free up cash to supplement their retirement funds. 

  • A financial advisor can help retirees make the best use of their assets and savings. 

What are the benefits of downsizing in retirement? 

Retirement can be an exciting new time in your life, and selling your home to move to a smaller property can have several benefits. 

There are financial advantages to retirement downsizing, including minimizing or paying off your mortgage, reducing maintenance and energy expenses, and creating a more affordable, accessible lifestyle.  

If you are downsizing your home in retirement, you can potentially make a significant profit and free up equity. You can use this money to supplement your retirement income, start your own business, or enjoy new experiences such as travel.  

How do you plan your downsizing strategy? 

Before downsizing your home in retirement and putting your house on the market, you need to put some thought into the following factors for a smooth transition. 

Here are some factors you should consider: 

1. Understand your goals: Decide how much money you need or want to release from equity. You should also visualize the kind of lifestyle you intend to follow, where you want to live, and the type of residence you fancy.  

2. Do the math: Consider all the hidden costs involved with selling your current house and buying a new one.  

3. Make some comparisons: Compare all expenses to make sure you will actually save. 

4. Start decluttering: At least three to six months before the move, start getting rid of surplus possessions. Sort things into four categories: keep, throw away, donate, and sell.  

5. Research: Start looking into the property market in your desired new location.  

6. Make improvements: Do the necessary maintenance on your current home to get the best possible selling price without overcapitalizing. You can start this six to twelve months before relocating to avoid cramming all the work and expenses into a short time before moving. 

What financial considerations are there when selling your home? 

Homeowners downsizing for retirement should understand the property market conditions when setting a price for their homes.  

When the demand for property is higher than the supply, it's a seller's market, resulting in sellers earning higher prices for their homes. A buyer's market works in reverse, which might benefit those who are ready to purchase their downsized property. 

Other factors affecting the price of a home include the condition, size, location, and amenities. Compare the prices of other homes in your area and ask a few real estate agents for a valuation to ensure you're pricing your home correctly. 

Selling your house comes with costs that could range between 7% -10% of your profits, excluding moving expenses.  

Consider the following table for typical fees: 

FeesTypical % of sale price
Real estate agent's commission 5.80%
Staging and preparation costs 1% - 4%
Inspections and repairs/maintenance Variable
Title, taxes, and settlement 1% - 3%
Finance or sales concessions 0% - 6%

How do you buy a new home? 

When downsizing in retirement, it's essential to calculate the amount of money you can afford to spend on a new home accurately and stick to your budget.  

At retirement, consider your capability of managing the cleaning and maintenance of your new space. In addition, think about buying a single-story residence in case of reduced mobility in the future. 

As you get older, having quick access to doctors, hospitals, shopping centers, and other amenities becomes more significant. Being close to family and friends is often a motivating factor in choosing where to live.  

Ideally, retirees should try not to take out a new mortgage. Instead, you can use the equity from the sale of their home to cover the cost of the new property. Lenders may approve mortgages to retirees but could charge them a higher interest rate and give them a shorter term. 

How can I get help with downsizing my new home? 

Downsizing your home for retirement can be a massive operation when you're faced with packing up an entire house in your senior years.  

But starting to declutter long before the move can be helpful. Enlisting the help of younger family members and friends will make for a quicker pack-up. Packing and labeling boxes room by room makes for a more organized move.  

If it's within your budget, hire a moving company. Many have people who pack the boxes for you in addition to moving everything to the new home. 

For a smoother transition to your new home, try making several trips to the community to familiarize yourself with the area scouting out healthcare providers, shopping centers, and other amenities. 

What are the pros and cons of downsizing? 

There are pros and cons to retirement downsizing. 

Pros of downsizing

  • Reduced living costs. 

  • Better financial security. 

  • Less home maintenance. 

  • The change of location may allow retirees to move closer to family or access better amenities. 

Cons of downsizing

  • It can be sad to leave a family home that has sentimental value. 

  • Adjusting to living in a smaller home can be difficult. 

  • Loss of social connections could lead to loneliness. 

  • Smaller homes sometimes come with additional levies and fees. 

  • Less space for family gatherings. 

Although downsizing in retirement can be a difficult adjustment, you should embrace the benefits.  

Your new lifestyle allows you to pursue your lifelong ambitions, enjoy hobbies you haven't had time for, and spend time with loved ones. Ideally, you have more financial freedom and less work to take up your valuable time.  

Get expert financial advice  

Downsizing for retirement can be the gateway to a simpler, more financially stable life.  

Familiarizing yourself with the processes of buying and selling homes and accurately factoring in all the relevant costs will help make it a financially successful move. It can also be a stressful time, so enlisting the help of an astute financial advisor will ensure you get the most out of your retirement money. 

Let Unbiased match you with an expert financial advisor who can provide the guidance and advice you need to ensure a comfortable, secure future.  

Writers

Unbiased team

Our team of writers, who have decades of experience writing about personal finance, including investing and retirement, are here to help you find out what you must know about life’s biggest financial decisions.