4 Key Signs You Can’t Afford To Downsize in Retirement — and What To Do About It
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Josephine Nesbit
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Angela Corry
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For many older Americans, the idea of trading in a larger family home for a smaller, more manageable property sounds like a smart financial move. But rising housing costs, emotional attachments and unexpected expenses can make downsizing more difficult and expensive than expected.
According to Finder’s Consumer Confidence Index, 79% of American adults feel stressed about their finances, noted Laura Adams, nationally recognized finance expert and award-winning author.
“Housing is likely your largest expense if you’re a retired boomer on a fixed income,” Adams added.
Here are key signs that downsizing might not be the right move for you — and what you can do instead.
Downsizing Isn’t Always a Financial Win
Higher mortgage rates and housing costs can make “smaller” homes more expensive than expected.
“With the rising cost of housing and relatively high mortgage interest rates, boomers may find that purchasing a smaller home is above their price range,” Adams explained. “Smaller ‘starter’ homes may be difficult to find in some areas due to high buyer demand.”
Instead, Adams suggests that staying in a larger home you’ve partially or fully paid off may actually be more affordable for retirees on a fixed income.
You’re Emotionally Attached to Your Home
Many boomers raised families and spent decades in their homes. Letting go can be emotionally painful.
“This generation has lived through and experienced the most financial crises to date. These homes they have lived in carry sentimental weight, heavy emotional attachment and memories of raising a family,” explained Peter Reagan, financial market strategist at Birch Gold Group.
Reagan advises those thinking about security in retirement to look at how much balance they have between their assets, and his highest priority is to make retirees feel emotionally secure in their next steps.
“Home equity is important, but being financially stable in retirement is about more than that. In my experience, what has helped is shifting the perspective of what they would be moving toward and not what they are leaving behind,” he suggested.
You’re Sitting on a Low-Interest Mortgage
Retirees who refinanced when rates were low may find that selling and buying again results in a higher monthly payment.
“The real estate market can be unpredictable, and selling a home might not result in the windfall they expect,” wrote Matt Ward, real estate professional and team lead for The Matt Ward Group at Benchmark Realty. “Plus, many Boomers are sitting on large, low-interest mortgages, making it difficult to afford a smaller, more manageable home.”
Ward recommends thinking about what you want from retirement. “If it’s financial flexibility, we should explore the potential of tapping into the home’s equity,” Ward wrote. Downsizing could also mean relocating to a more affordable area or considering a multi-generational property, he added.
“The key is approaching it with a strategy that respects their lifestyle and long-term goals,” Ward explained.
The Costs of Selling Are Eating into Your Profits
At first glance, selling your home might seem like a straightforward way to unlock equity and simplify your life, but the hidden costs can quickly eat into your profits.
“There are expenses involved in transactions like realtor commissions, taxes and even the possibility of expensive repairs that can cut into any possible gains,” wrote Brandon Thor, CEO of Thor Metals Group. “This added layer of complication makes the choice more intimidating for those who did not plan.”
Thor suggests having an idea of where you stand in terms of your finances. “A calculation that includes not only the price of selling their home but also the expense of relocation and purchasing a new home,” Thor explained.
He also recommends meeting with a retirement-trained financial planner and considering financial tools such as a reverse mortgage to release equity without selling your home.
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