How Downsizing Impacts Your Retirement Plan
Authored by: Chris Vidler, CFP®, CIMA®
As you approach retirement, one of the most significant lifestyle decisions you may face is whether to downsize your home. For many pre-retirees, the idea of simplifying life, cutting costs, and freeing up time and money for travel or hobbies is appealing. But like any financial decision, downsizing comes with both opportunities and potential pitfalls.
The Upside: Financial and Lifestyle Benefits
1. Lower Housing Costs = More Retirement Flexibility
Downsizing can significantly reduce your monthly expenses. A smaller home often means:
- Lower mortgage or no mortgage at all
- Reduced property taxes
- Decreased utility bills
- Less maintenance and upkeep
These savings can be redirected toward travel, hobbies, or even bolstering your retirement nest egg. According to the National Council on Aging, moving to a smaller, more manageable home can help maintain financial stability and support aging in place [1].
2. Decluttering for Peace of Mind
Downsizing also offers a chance to declutter. Over the years, we accumulate a lot—furniture, keepsakes, paperwork, and more. Letting go of excess possessions can be emotionally freeing and practically helpful. It also reduces the burden on your family in the future, who might otherwise have to sort through decades of belongings.
3. Rightsizing Your Life
Many retirees find that a smaller home better fits their new lifestyle. With children grown and gone, the extra bedrooms and large yard may no longer serve a purpose. Downsizing can mean moving closer to family, relocating to a walkable community, or finding a home with accessibility features that support aging in place [1].
The Caveat: Downsizing Doesn’t Always Mean Saving
While the benefits are real, it’s important to approach downsizing with clear eyes. Many pre-retirees assume they’ll save money by moving to a smaller home—but that’s not always the case.
1. Desired Locations Can Be Costly
Often, retirees want to move to areas with better weather, more amenities, or closer proximity to family. These desirable locations—think coastal towns, urban centers, or retirement communities—can come with a higher price tag per square foot. In some cases, the cost of a smaller home in a prime location may rival or exceed your current home’s value.
2. Hidden Costs of Moving
Don’t forget to factor in:
- Realtor fees and closing costs
- Moving expenses
- Renovations or upgrades to the new home
- HOA fees or community dues
- A potentially higher mortgage interest rate
These can eat into the equity you hoped to unlock. A recent Kiplinger article echoes this, warning that planned savings may be unrealistic, especially in urban markets [2]
3. Emotional and Practical Trade-Offs
Leaving a long-time home can be emotionally difficult. There’s also the challenge of fitting your life into a smaller space. If you’re not ready to part with certain possessions, or if you frequently host guests, downsizing might feel more like a sacrifice than a simplification.
When Downsizing Makes Sense
Downsizing can be a smart move if:
- Your current home is too large or costly to maintain
- You want to reduce your monthly expenses
- You’re looking to simplify your lifestyle
- You plan to relocate to a more affordable area
- You want to age in place in a home with better accessibility
Choosing a home that fits your current lifestyle, and financial situation can be a smart strategy to help your retirement savings go further
Final Thoughts
At Concentric Wealth Partners, we believe that every retirement plan should be as unique as the individual it serves. Downsizing can be a powerful tool—but it’s not a one-size-fits-all solution. Before making a move, consider your financial goals, lifestyle preferences, and emotional readiness.
If you’re thinking about downsizing in retirement, let’s talk. We can help you evaluate the financial impact, explore your options, and ensure your retirement plan supports the life you envision.
References
[1] Downsizing for Aging in Place Guide - The National Council on Aging
[2] Nine Things You’ll Spend More on in Retirement
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Chris Vidler and not necessarily those of Raymond James.
Investing involves risk and you may incur a profit or loss regardless of strategy selected.
