Do I Need to Downsize My Home in Retirement?

Conventional beliefs about retirees are that they:

 

  1. enter retirement with no debt on their homes (no mortgages), and
  2. own homes that have more living space than they need (because children have grown up and left the home).  

Whether these trends hold true as the baby boom generation enters retirement remain to be seen. There is some recent indication that mortgage debt is becoming more common for retirees.

 

If you have more space than you need

If you no longer have a need for larger living space, one option to consider is downsizing your living accommodations. That may mean moving to a smaller traditional dwelling, which could mean less overall maintenance and cost. You could still enjoy many of the typical advantages of owning a home, such as

  • keeping a garden
  • changing your landscaping
  • spending time outdoors doing yard work

Consider a Retirement Community or Condominium

If you want little or no maintenance responsibilities, you could move to a retirement community or a condominium. The downsides to shared-living arrangements such as these are homeowners' association fees (which typically cover maintenance on the dwelling and the surrounding property). Fees will typically increase over time to keep pace with inflation, so what seemed to be a reasonable expense when a unit was first purchased may become a significant burden several years down the road

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If you sell your primary residence and purchase a less-expensive home or condo, the government lets you keep up to $250,000 of gain tax-free for singles or up to $500,000 for married couples. That money can be an unexpected windfall in retirement. As always, certain rules apply for this preferential tax treatment. But, typically, if you’ve lived in your home for at least two of the last five years, you can qualify for this tax treatment. Check with your tax advisor for your specific situation.

 

Get More Home for Your Money

A twist on the downsizing option is moving to a less-expensive part of the country. You may get more home for your dollar and still have money left over. Be sure to check out local and state tax rates in the potential new area. Think through social and family issues as well, since you may be moving to an area where you need to develop new friendships and a support network.