My Client Didn’t Downsize in Retirement: Why Keeping His Home Was His Smartest Money Move

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Homeowners have unique retirement opportunities that renters do not. Among them is the option to sell their homes and move to a smaller, cheaper house — perhaps in a cheaper neighborhood or even a cheaper state — and bank the profit. But that strategy isn’t right for everyone.

Keep reading to learn how one retiree used the home he already had to achieve financial security in the here and now, rock-solid estate planning for the next generation, and the lifestyle he saved so long and hard to achieve.

A Financial Planner Approaches Each Retirement Differently

Stephen Roth, CFP and founder of Limestone Financial Group, has spent 20 years helping retirees “maximize well-being vs. wealth.” Roth says a successful retirement requires “a completely different mindset where you go from accumulating to the opposite.”

In nearly all cases, that mindset pushes a pair of concerns to the forefront.

“When it comes to retirement planning, the couples and families I work with have two primary goals: maintaining their lifestyle income needs and ensuring their legacy family planning goals are carried out,” said Roth. “However, there is no cookie-cutter standard that applies to all retired couples or scenarios.”

Roth said that no matter your goals, your level of planning and preparation will largely determine your chances of success in achieving them.

“Given the uncertainties of the future, thorough preparation allows more time to consider risks and opportunities, leading to smarter choices and options that are instrumental in controlling our environment,” he said.

For many retirees, housing is the costliest expense, and their home is their most valuable asset. Therefore, a decision to downsize is an intimately personal choice that can make the perfect retirement possible or become a painful regret.

For one of Roth’s clients, staying put provided the best of both worlds.

Leveraging Equity Through Downsizing Is the Perfect Move (for Some)

Many retirees sell the family-sized home they own, use the windfall to buy or rent something smaller and more manageable for less, and invest the profit in a higher-quality retirement.

However, in terms of both money and lifestyle, downsizing is not the right choice for everyone.

“Risks and opportunities need to be assessed before rushing into it impulsively,” said Roth. “Let me share an example from a real situation with a client and why a standard formula cannot be applied to selling your home in retirement from uncertain life expectancy.”

A Retiree Starts a New Relationship in His Old House

Roth told the story of an affluent 76-year-old retiree in New Jersey whose wife died nine years ago.

“He stopped working at 72 and finds himself in a committed relationship with a lovely woman he met on Match.com,” he said. “He opts to remain in his North Jersey home instead of selling, downsizing, moving to a cheaper state for retirement or a smaller home with less upkeep and fewer expenses to maintain.”

Unlike many retirees, Roth’s client had the luxury of a choice. Since he could finance his retirement without selling, he could base his decision on whether or not to downsize on wants alone.

“With or without the extra cushion from proceeds of a sale, he had sufficient assets to cover his expenses in retirement from carefully planning an income strategy that meets his lifestyle needs,” said Roth, who agreed with his client’s decision. “What if things don’t work out romantically with his new partner? Retaining the home allows him to live in it, within a two-hour drive of his adult children and grandkids, plus his partner is in Westchester and close.”

Financial Security for Him and His Posterity

Staying put checked all the lifestyle boxes that Roth mentioned, but the choice not to downsize was also a financially savvy play.

“Keeping the home as an asset provides exposure to potential gains and profit from owning the investment,” said Roth. “Historically, performance has been in line with the equity markets so it should appreciate further or be in line with stocks.”

Financial security is one of the two concerns that Roth said all his clients share. The other is legacy planning — and the IRS takes a cut when you sell a long-appreciating home, but not when an heir sells it after inheriting it. 

“The last advantage is the step up in cost basis at the death of the owner to determine the capital gains owed when the home is finally sold by beneficiaries,” said Roth. “The result is that beneficiaries are taxed at a lower capital gains rate, increasing the net amount transferred as an inheritance.”

This two-pronged strategy gave Roth’s 76-year-old retired client peace of mind, greater control and relationship independence in his golden years.

“It provides his adult children protection from their father being a burden on other people as he ages, as well, so it worked out well,” said Roth.

In the end, however, that retiree’s strategy was right only for that retiree.

“Personalized planning is important because each retirement journey is unique and influenced by their preferences and future variables,” said Roth. “It can’t be compared with or to another journey.”

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