5 Reasons You Should Downsize Well Before You Retire

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Remember that minimalist trend from a few years ago? The one where you were encouraged to send anything that didn’t “spark joy” to the junkyard or thrift store? It may have seemed like just another lifestyle craze, but it turns out, downsizing is actually sound financial advice for anyone looking to retire.

It’s understandable that someone well into retirement wouldn’t want to rattle around in a big house or keep overspending. Still, there are also good reasons for people years away from retirement to start downsizing now — whether that means adjusting their living spaces, spending habits or portfolios. 

GOBankingRates talked to several experts about the benefits of getting a head start on downsizing for a retirement that truly “sparks joy.” 

You Can ‘Test Run’ Your Lifestyle

According to Drew Lunt, founder and advisor at Scratch Capital, downsizing your spending before you retire can be one of the best things you do for yourself.

“The ideal time to test it is a few years before retiring — that way you can make sure the lifestyle changes are realistic before turning off your income stream,” he said.

He adds that learning to adjust your expenses during periods of prolonged adversity can help prepare you for long-term financial success. You’ll know how to avoid putting unnecessary stress on your portfolio and allow your investments time to recover.

“There’s also a big peace-of-mind benefit. Clients with lower fixed costs are often far less anxious during downturns,” he said. “They know they can dial back spending quickly if needed — and just as easily turn it back up when times are good.”

Downsizing Can Take Time — and Help You Save Money

When Leslie H. Tayne, Esq., finance and debt expert and founder of Tayne Law Group, describes a comprehensive downsizing strategy, it touches on everything from your home to your car to your lifestyle. Getting all the pieces in place can take time — and simultaneously help you save money to funnel back into your retirement.

For starters, you can move to a smaller home in a more affordable community to save on your mortgage or rent, property taxes and utilities. In the garage, you could switch to a car with lower monthly payments and insurance costs — as well as better gas mileage. If you’re partnered and able to do so, you might consider sharing a single vehicle.

Tayne also advises selling used home goods or yard tools you no longer use.

“Downsizing before retirement can significantly improve your long-term financial health,” she said. “Whether it’s reducing housing costs, driving a more affordable vehicle or cutting other expenses, simplifying your lifestyle can free up money to invest or boost your retirement savings.”

She emphasizes that downsizing becomes increasingly important to your financial stability as you approach retirement age. Working with a trusted advisor, you can develop a personalized downsizing strategy based on your retirement goals and other factors, such as the ages of any children or dependents.

It’s Easier Than You Think — and Helps You Adjust to Lower Living Expenses

Though major decisions like downsizing your home or car tend to dominate retirement cost-cutting conversations, Tayne notes that smaller steps — like canceling unused subscriptions or cutting back on dining out — can also improve your cash flow and increase savings.

“Another helpful tip is to renegotiate variable monthly expenses like your cellphone bill,” she said. “Many consumers overlook this strategy, but it can lead to savings of hundreds of dollars each year.”

These small adjustments can make a big impact: The earlier you start, the sooner you adapt to lower living expenses — and the more you can save for retirement.

You Can Free Up Equity While Opening New Income Streams

Downsizing your home is a significant personal and financial decision — but if it’s the right move for you, Tayne says it can reduce monthly expenses while unlocking home equity that can be redirected toward retirement savings or new income sources.

However, she cautions that the current housing market may present challenges. In high-interest-rate environments, selling may not always make financial sense, especially if you’d have to buy another home at a higher rate. It’s best to seek insights from financial advisors and trusted real estate agents before making a major move.

Selling your home isn’t the only way to earn money from downsizing.

“Another option to help free up funds in retirement using a home you own would be renting the home or considering short-term rental companies, such as Airbnb and Vrbo — if you have extra space,” she said.

Downsizing Can Support Healthier Aging

As Grant Meyer, CFP, BFA, certified grief educator and founder of TruMix Advisors, explains, some benefits of downsizing your home are more obvious than others. Smaller homes are easier to clean. Moving into a condo or townhome typically means less upkeep. Communities with homeowners associations often include lawn care and snow removal.

These changes can help reduce physical strain and minimize the risk of injuries that could affect your quality of life in retirement. When working with clients concerned about aging in place, Meyer advises looking for ADA-compliant homes with features like wider doors and hallways.

Meyer also encourages exploring 55-plus communities.

“Downsizing can also offer emotional and social benefits. Many of our clients enjoy the social aspects of 55-plus communities,” he said. “There is research that suggests a strong community can be better for health and longevity.”

The Bottom Line

The key to a healthier, happier and more financially stable retirement might just be thinking small — as in downsizing. Whether you’re moving to a smaller home or cutting unnecessary subscriptions, talk to a trusted financial advisor to create a strategy that works for you.

This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.

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