How to Know if It's Time to Downsize Your Home
Reginald A.T. Armstrong • Retirement Planning
When planning for retirement, one of the most critical and consequential issues relates to your home and whether or not to downsize it. Retirees often want to stay in their family home, where they feel most comfortable and settled; however, many find that the expense and upkeep of their home can become an unnecessary burden.
It’s not uncommon for those heading into retirement to recognize that they have more house than they need. Not only that, but they may recognize the home as an asset with value that can be better leveraged differently. Downsizing can become the answer they’re seeking.
Here are six signs it’s time to downsize your home for retirement:
You Have More Space Than You Need
After becoming an empty nester, chances are you're no longer using extra bedrooms, a formal dining room to host big family dinners more than twice a year, large areas for entertaining, or having teenagers hang out every weekend in the basement. More than likely, you’re storing your adult children’s belongings, paying to heat and cool space that’s barely used, and spending needless time, energy, or money cleaning rooms you rarely enter.
Downsizing to a smaller space means closing a chapter in your life, which can be an emotional experience. But it’s important to think rationally about what purpose the space is serving in your retirement years.
Upkeep Is Becoming a Drain
Performing basic maintenance on a home can be time-consuming, physically tiring, and costly. Replacing everything from a refrigerator to a roof will continue to come out of pocket. As you age, little things like climbing a ladder to change a lightbulb or crawling into the attic to change air filters become more challenging. Even expenses like routine lawn care or minor repairs can drain a fixed income.
Downsizing to a condominium with fees covering basic repairs and upkeep with a maintenance technician on-call might be more convenient and economical. You may also want to consider renting; remember, you’re no longer in your wealth accumulation phase, so if you have the cash flow, renting could make good sense.
You Live in an Expensive Location
Maybe you chose your neighborhood for its proximity to your job, good schools, dining, the arts, and entertainment. Perhaps you were drawn to the upscale amenities, such as club facilities or a neighborhood pool. These conveniences may come with a hefty price tag through your homeowner’s association or city taxes. Moving a little further out can eliminate or significantly lessen your expenses.
You might have lived in high-cost metro areas throughout your career, but a smaller town with a slower pace and lower cost of living could be the ticket to a happy retirement. Downsizing to a nice condo on Main Street, a little bungalow near town, a 55+ community in the suburbs, or a quiet place somewhat off the grid are all options to consider.
You Live in a Multi-Level or Inaccessible Home
Some houses are more difficult to navigate with age than others. Two-story homes with no bedroom or bathroom on the ground floor, three or four-story townhomes, homes with essential rooms in the basement or attic, split-level homes, houses with sunken living spaces, or homes with lots of outside stairs or high-incline driveways are usually not conducive to aging in place.
Even if you’re fit and active, the likelihood of having mobility issues as you get older is more common than might expect. You will have a better chance of maintaining your independence if you downsize into a one-level ranch-style structure, condominium, or apartment.
Your Home’s Value is an Asset
If your house is paid off or you have considerable equity, it could be time to start looking at your home as a financial asset to tap into rather than just a roof over your head. As many homeowners approach retirement, their home’s value has increased substantially since the initial purchase.
By selling it, you can buy a smaller, less expensive home with cash and invest the difference in low-volatility funds. If you don’t want to sell, you may be able to keep the house and use a line of credit (HELOC) to access some of that equity while renting out the property as another source of income.
The Real Estate Market Is Hot
As you reach retirement, you have less time to ride out real estate markets than in the past. If inventory in your area is low and demand is high, it could be an ideal time to make a move.
But when you're ready to sell your home, it's important to consider the costs involved. Your realtor will take a commission, closing fees and taxes are due, and you'll have to pay off your mortgage. If you've owned the house for a while and it has increased in value, you may also have to pay capital gains tax when selling it.
You will need to consider where you will go after selling your home. Are there any homes in your lower price range? Are they in a neighborhood where you’d feel safe and comfortable living? You might not be able to find exactly what you’re looking for right away, so be prepared for this possibility or seek out alternatives.
Is Downsizing Right for You?
According to a recent AARP survey, approximately 75% of adults 50 and older reported wishing to remain in their current home or community for as long as possible. But sometimes homeowners sit on their biggest asset because they are emotionally attached to it, potentially costing themselves a comfortable retirement. Deciding to downsize is just one step. You’ll need to figure out where you will live next and what kinds of needs and options you’ll have for the future. 
If you plan on moving closer to family members or friends who can help support and care for you as you age, make sure there's enough space to accommodate everyone’s needs. Your adult children may be helping to support their in-laws as well. Some families are getting creative; for example, older, widowed or single siblings are choosing to cohabitate. This could mean having multiple people living in a smaller house than they're used to and will take some adjusting, but thinking outside the box can sometimes work well. In fact, AARP found that nearly 70% would be willing to share their home with a relative and more than 50% with a friend as they get older. 
More and more people are taking an alternative approach to downsizing. They want a considerably lower cost of living without giving up the luxuries and conveniences of the good life. This is why overseas retirement is becoming more common as Americans flock to expat hotspots, such as Latin America, Portugal, or Thailand.
In other words, there’s more than one way to downsize. Consider all of your options carefully, and before making any big decisions, be sure to consult your financial advisor.