5 Things To Consider If You Need To Decide Between Downsizing or Delaying Retirement
Written by
John Csiszar
Edited by
Cory Dudak
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If you’re approaching retirement and feel like you’re coming up a bit short when it comes to your savings, you aren’t alone. On average, Americans in general aren’t reaching their goals.
retirement Savings Mistake That’s Costing Americans Up To $300K
According to Crews Bank & Trust, roughly 50% of Americans have $0 saved for retirement, while about 80% have less than $100,000. But even if you find yourself behind schedule from a savings perspective, there are a couple of tricks you can use to help make up any shortfall: downsizing or delaying retirement. Each has its own pros and cons, so you’ll have to review your personal financial situation to see which one may help you the most.
Here are the most important things to consider to help you make that decision.
Healthcare
One of the most overlooked expenses in retirement is healthcare, but for many retirees, it’s their biggest single expense. If you haven’t factored in the potential cost of healthcare over your retirement, even if you consider yourself in relatively good health, it might tip the scales in favor of working a few extra years rather than downsizing and trying to live off your equity and by reducing your expenses.
Cost of Moving
If you’re planning to downsize but all the places you want to move to have higher costs of living, you might be better off downsizing and remaining where you are. It makes no sense if you’re trying to stretch your retirement dollars if you sell your $300,000 house and buy a $600,000 one, or if your rent will jump from $1,400 per month to $2,600, for example.
Size of Home
If you were married and raised four kids but now are a widow and an empty-nester, downsizing could be the right call. Swapping a five-bedroom home for a one-bedroom condo can not only deposit a lot of equity into your account, it can also offer you the opportunity to live in a more desirable area for less money. You’ll likely reduce your monthly utility and maintenance costs as well. That might be the financial push that allows you to retire now instead of working for longer.
Life Expectancy
Life expectancy is a tricky thing, and will always be an educated guess at best. But there are some data points that can help you make your best judgment of your life expectancy, and they can play a big role in determining any pre- and post-retirement moves you should make.
You can start with the government’s own life expectancy tables that are used for determining required minimum distributions from retirement plans. These are actuarial tables that give a projected average future life expectancy for adults of various ages. As averages, however, they may not particularly apply to you specifically — but they’re a good starting point.
From there, you can tweak the estimate based on various factors specific to you, such as your long-term health history and whether or not longevity runs in your family. If you’ve never had any major health problems and your parents and grandparents lived into their 90s, for example, you may expect to live a longer life than average — although, of course, nothing is guaranteed.
With that information, you can make informed judgments about your retirement planning. If you anticipate living a long time, you may have to build up more reserves, or perhaps work longer, than someone with a shorter life expectancy.
Social Security Benefits
Although you can start drawing Social Security as early as age 62, you won’t reach your full benefit until age 67, if you were born in 1960 or later. If you can delay even longer, your benefit will grow by 8% for each year you wait from age 67 to age 70.
Depending on your situation, you may be able to combine downsizing with delaying your retirement, perhaps getting the best of both worlds. For example, if you have a large amount of home equity, you can downsize and add that money to your savings while continuing to work for a few more years. In that way, you’ll boost your retirement nest egg while still earning an income to fund your lifestyle, and your Social Security benefit will continue to quietly rise in the background until you formally retire.
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