While you might save a bundle, there are some pitfalls to think about, too.
There are certain expenses in retirement you really can’t control. You need healthcare, for example. So if the cost of Medicare goes up, you may have no choice but to pay.
Housing, on the other hand, is an expense you can control to some degree. If you raised your family in a larger home and are now retired, you may not need the same amount of square footage you once did.
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Downsizing could help you lower your housing costs to a large degree. That could allow you to better stretch your savings and Social Security benefits.
Plus, once you’re retired, you may not have the energy for home maintenance you once did. A smaller home could be a lot less work to deal with.
But while downsizing in retirement definitely has its perks, there are some potential drawbacks you need to know about, too. Here are three to keep on your radar.
1. Unexpected costs
You may be in a position where you can sell your home for enough money to buy a smaller one mortgage-free. Given that mortgage rates are up these days, that’s a good thing.
But you may encounter a world of expenses in the course of selling your home, forcing you to dip into your savings. These could include:
- Real estate agent fees
- Home staging fees
- Cosmetic repairs to make your home more appealing
- Moving costs
Before you downsize, run the numbers to see what it will cost you, and if the savings you expect to get out of a smaller home will be worth it.
2. A disruption to your social life
If you’ve lived in the same neighborhood for many years, you may have developed a nice social circle nearby. If you’re forced to move to a different neighborhood in the course of downsizing, it could impact your social life in a negative way.
This isn’t to say that you won’t make new friends where you move, or that it won’t be possible to drive a little further to spend time with your old crowd. But remember, as you get older, nighttime driving can become more difficult.
It’s one thing to meet friends for dinner who live six blocks away. It’s another to have to drive 25 minutes on highways at night when your vision isn’t what it used to be.
3. New gotchas
When you spend many years in a house, you get used to its quirks. You know how to wiggle the fence gate open when it seems stuck, you’re familiar with the clang of the heating system kicking on, and you’re aware that any food you stick in the back corner of the fridge is going to turn to ice.
When you move to a new home, you don’t know its ins and outs. And even if there’s nothing majorly wrong with the home, getting used to those new “gotchas” may not be something you enjoy later in life.
Think carefully before you downsize
Downsizing in retirement could make your life easier from a financial perspective. If you’re tired of raiding your IRA every quarter to pay a large property tax bill, and your utility bill makes you want to shudder, then it’s worth looking into a smaller home.
But be aware that downsizing also comes with serious drawbacks. You’ll need to make sure you’re prepared for them before moving forward. And if you have enough money in your IRA or 401(k) to stay where you are, it may end up being worth it.