If you are near retirement and looking for ways to cut expenses, downsizing to a smaller home is a great option worth considering. Once the kids have moved out, you probably don't need all that extra space anymore. Luckily, the housing recovery is starting to pick up and home prices are growing fast. Here's why downsizing could improve your retirement finances:
Location. Once you retire, you won't be tied down to a location anymore. Many of us like to live close to our job because we hate commuting. When that's over with you can explore other locations. Moving closer to children and grandchildren is a great way to build stronger family ties. If you are tired of dealing with snow and the long winter up north, then moving south is a great option.
Less maintenance. A smaller home usually means less maintenance. There is less space to clean, less lawn to mow and fewer things to fix. When you need to repaint or replace the carpet, it will be quite a bit cheaper with less square footage to deal with.
A chance to get rid of some junk. We tend to accumulate stuff when we live in a location for many years. In a big house, there are a lot of rooms and storage space to keep things you don't need. Downsizing to a smaller home will give you a chance to take inventory and eliminate any unnecessary junk that is hiding in your home. It's also a chance to make a little money on the side. One man's trash is another man's treasure. You can hold a big garage sale and then sell everything else on eBay or Craigslist.
Save on the mortgage. Many people are carrying a mortgage into their retirement. Wouldn't it be nice to reduce or get rid of that big monthly mortgage bill? Downsizing to a smaller home will most likely mean a smaller mortgage payment. If you have equity in your old home, you might even be able to buy a small condo or house outright.
Save on utilities. A smaller home will take less energy to heat and cool. You can also conduct an energy audit to see how you can improve your home efficiency. It's much easier to make a small home energy efficient than a big house. If you move to a condo or apartment, it will be even easier to heat and cool than a house. Condos usually have shared walls which helps bring down the utility bill.
Reduce property tax. Even if your home is paid off, you still have to pay property taxes every year. If you are downsizing to a smaller home in the same general location, you will usually reduce the property tax. However, property taxes can vary greatly in different states, so you need to take this into account when you're moving. It's probably a good idea to move to a tax-friendly state after retirement.
Making the decision to relocate should not be taken lightly. Moving to a smaller home can be a big financial win, but change is not always easy and you still need to do your own homework on the pros and cons of downsizing. It might be a good idea to rent an apartment for a few months in a new location to see if you can handle the transition. Consider this a trial run. Moving is a personal decision and while the cost savings can be beneficial, not everyone wants to leave behind their friends and neighbors.
Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing, and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.
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