When should you "Downsize"

Moving is a hassle, and downsizing to a smaller home isn't always the cash bonanza some might expect. As a result, many wait until well into retirement before moving to a smaller house or apartment.  There are plenty of reasons for that inertia. Emotionally, it's hard to let go of a home filled with memories.

 But for many retirees, it can pay to downsize sooner rather than later.

 The financial benefits may not seem huge at first, but over time they can make a meaningful difference in extending the life of a nest egg.

When it comes to downsizing if it makes sense, don't wait. 

Some of the reluctance stems from the idea that trading a house with a paid-off mortgage for a rental or a condominium with maintenance or association fees will lead to higher monthly costs.

 That can be a mirage, in a home, the expenses are hidden and include maintenance, a roof, hot and even cold water, heating and landscaping. 

Often there's a desire to hold on to a house where children were raised so that they—and the grandchildren—can come back and visit. You should think twice about the decision.

 Rather than clinging on to a three-bedroom and paying for the maintenance and heating, it's cheaper to put [relatives] up in a hotel room.  Plus, most adults don't really want to go back to their parents' house and stay in the room with their old posters on the wall.

 Trading for the more visible costs of a rental or condo can help with planning.  You will know what your fixed costs are going to be. 

Downsizing can have a big impact on a retiree's financial plan. Even with a mortgage that has been paid off, housing often accounts for 30% of retirement expenses.

 If you do the math for a move from a house worth $350,000 to one costing $240,000. Factoring out the expenses of moving—roughly 10% of the selling price—that leaves $75,000 from the purchase of the new residence that can be added to a retiree's savings.

 That $75,000 could enable a retiree to withdraw an extra $3,250 from savings every year. On top of that, the retiree would have savings from lower expenses on the house, which he says could easily be an additional $3,000 a year. That's $6,250 a year in extra income.

 More than just money is at stake. Many people move from suburban houses to apartment complexes with amenities on site, such as shopping and restaurants.

 People often fail to appreciate how the aging process makes it harder to move. As just about anyone who has moved knows, the process is physically and mentally exhausting, even at a young age. It's that much more daunting for older adults.


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