Downsizing the Family Home
Downsizing, selling your current manse and buying a less expensive home either before or after you retire, makes a lot of financial sense and could become a sensible lifestyle decision besides.
Downsizing is becoming more popular. Interest in downsizing is picking up steam in the United States and those who think about these matters opine that the trend is likely to accelerate as the baby boom generation confronts retirement. There's more than anecdotal evidence to support this thesis. The average size of new homes has actually declined a bit in recent years to about 2,200 square feet. Compared with prior generations, people are better traveled, more adventurous, and not as attached to their communities. There is less attraction to remaining in the family homestead when there are so many more exciting housing arrangements and areas in which to live. Indeed, many have had to bear with intransigent parents who insisted on staying too long in a too large house that turned into a maintenance money pit.
Lifestyle advantages. Downsizing, particularly into a newer home, could reduce the time and inconvenience of maintaining your current home. Relocating to a place that has a less frenetic pace can be attractive to some. Conversely, moving from the suburbs to the big city is appealing to others. Health considerations may also influence your decision to relocate to an area with a more salubrious climate. Proximity to family members is yet another reason to pick up stakes.
Financial advantages. But the primary benefit of downsizing for most is financial. If money is no object, you still might want to consider a change in housing, but there's nothing to preclude your spending the same or more on the new home, particularly if you have an edifice complex. Here are the financial bennies:
- Reduced debt. Eliminating or reducing a mortgage that might otherwise erode your retirement budget would dramatically improve your retirement living standard.
- Tax breaks. Uncle Sam rewards home sellers with a big break in capital gains taxes. Suffice it to say that you'll probably not owe any federal income taxes when you sell your home unless you have a big league gain on the sale.
- Increased income. If your downsizing allows you to free up capital to invest, you'll enjoy more income throughout your retirement.
- Reduced housing expenses. Downsizers usually also enjoy lower housing expenses – for example, property taxes and utilities.
- Reduced maintenance. Most of us have more pressing matters to attend to than fixing an old toilet, and they're probably not handy around the house to boot. If you downsize into more modern quarters, maintenance hassles and costs will be lower.
