Downsizing for Retirement: A Step by Step Guide
Our friends at retireguide.com wrote a great article on downsizing that we wanted to share with you as it has some great advice and suggestions.
Downsizing for Retirement: A Step by Step Guide
Downsizing for retirement takes planning, hard work and time. It involves organizing your current home, donating unwanted items, putting your house up for sale and moving to a new location. Some people hire experts to help, while others rely on friends and family for support.
According to a Zillow report, 46 percent of baby boomers who sold homes in 2017 were in the process of downsizing. Downsizing is a major decision, influenced by unique financial and emotional factors. Decluttering a large home is no easy feat. Selling your house, finding a new one and moving your belongings adds further complexity. In this guide, we explore the reasons people downsize for retirement and share advice from experts on how to navigate the transition. We also look at other aspects of the process, such as getting your home market-ready and estimating moving costs.
1. Determine Your Reasons for Moving
Moving is a stressful experience at any age. Downsizing for retirement carries unique challenges.
In a 2018 study by Merrill Lynch, the number one reason given by respondents for moving in retirement was to be closer to family. The desire to reduce expenses came in a close second. Not everyone makes the conscious decision to downsize. Sometimes a move is immediate and necessary because of rapidly declining health, the loss of a spouse or an unexpected financial crisis.
Understand your own motivation for moving. Weigh the pros and cons so that you feel comfortable with the decision.
It can be helpful to consider the following questions:
- Where do you want to live?
- Do you want to live in the same area or a different state?
- What style home will be practical to navigate?
- How much space do you need to be comfortable?
- What sacrifices are you willing to make?
- How much time and money can you commit to the moving process?
It’s also important to communicate early and often with your family. If you’re married, discuss any concerns your spouse may have about the process. Make sure your kids know what’s going on, too. Let them come over and help you sort through items, especially if they grew up in the house. This can prevent conflict and resentment down the road.
2. Financial Aspects of Downsizing
Saving money is one of the primary reasons people downsize in retirement. Cheaper housing is an easy way to boost your budget and increase your retirement savings.
Advantages of Downsizing in Retirement
- Increased Cash Flow – Selling your home will likely result in a windfall of cash. This can boost your savings and grow your retirement nest egg.
- Cheaper Mortgage – If your current home isn’t paid off, a new home with a lower monthly mortgage payment can give your budget room to breathe. The money you save each month can pay for a yearly vacation or finance a grandchild’s future education.
- Less Cleaning and Maintenance – A newer home will likely need fewer repairs and have lower upkeep costs than an older home. And you probably won’t spend as much money hiring help to take care of the property.
- Lower Utility Bills – Smaller spaces and fewer rooms mean lower utility costs. If you’re moving to a home with new windows or energy efficient appliances, you may save even more.
But before you make a move, get a handle on your finances. Hidden costs and poor planning can eat up potential savings if you’re not careful. “Selling a home isn’t cheap,” Alan Caldwell, a financial advisor based in Nashville, told RetireGuide. “And you almost always spend more money when you move than you planned to.” That’s why Caldwell, founder of On Track to Retire LLC, says it’s critical to get estimates from moving companies and set a budget in advance.
“During major life events like a move, we tend to think, ‘Well, I’m in a special time right now. It’s OK to spend money because I can control it later,’” Caldwell said. “But you need to be careful and track your spending as you go.”
Expenses to Consider Before You Move
- Homeowners Association Fees – You’ll owe monthly fees if you move to a neighborhood, townhome or community with a homeowners association, or HOA. HOA fees vary widely, but some sources estimate costs between $100 and $700 per month. Fees are based on the services the HOA provides, such as lawn care. The more services and amenities, the higher the HOA fees.
- Getting Your House Market-Ready – Staging is the process of preparing your home for sale in the real estate market. It can mean many things, from painting the walls and installing new flooring to landscaping improvements and replacing bathroom faucets. It’s not cheap, but it may be necessary if you don’t want your home to sit on the market forever. Add critical home repairs to your to-do list, too.
- Homeowners Insurance and Property Tax – Just because you move to a smaller home doesn’t mean you’ll save money on homeowners insurance. Location also matters. External factors, including crime rates and proximity to natural hazards, can increase insurance premiums. Compare rates on the same coverage with different insurance companies to get the best deal. Be aware of changes to your property tax bill, too.
- Real Estate Agent Fees – The standard commission for a real estate agent is about 6 percent of the home sale price. If you’re selling a $250,000 home, the buying and selling agents could take a total of $15,000. “That’s a ton of money,” Caldwell said. His advice? Be aware that closing costs and agent commissions will decrease your final payout.
- Purchasing Items for Your New Home – After you downsize, you may still need to buy things for your new home. “We tend to spend a lot of time at Home Depot and Target when we first move,” Caldwell points out. Budget for these expenses before you move and only buy what you absolutely need.
3. Start Downsizing
You’ve decided to move. Now it’s time to start downsizing your current possessions. But where do you start? It isn’t a simple process. People have created entire careers out of helping others downsize for retirement.
It may seem daunting, but don’t let the task ahead overwhelm you. “Decisions about what to keep and what to do with the rest can create decision paralysis,” Anna Novak, downsizing expert and owner of Simply Downsized LLC, told RetireGuide. “It’s a huge reason people have a hard time getting started.” Novak and other experts recommend setting goals and timelines. Hold yourself accountable. “Generally, once people know where they are going and can envision themselves there, they can start the process of letting go and get excited about a positive change,” Novak said.
Start Small, Give Yourself Time and Make a Plan
Rushing a move can amplify an already stressful experience. Experts, like Novak, suggest starting small. Tackle one room before starting on another. Give yourself enough time to do the job right. You won’t finish everything in one weekend. Most experts say the downsizing process takes at least six months to a year to complete. So it’s helpful to put a plan in place.
Be Ruthless — and Realistic
It’s easy to fall in love with objects — and often very difficult to let them go. “Downsizing involves letting go of 70 to 80 percent of the belongings it took you 20 to 30 years to accumulate,” Novak said. Be realistic. Take a hard look at each item in your home. Identify the things that are most useful or loved. If you haven’t used something in more than a year, donate it or throw it away. Get in a habit of finding obvious things you can get rid of, such as duplicate household items, outdated paperwork, clothing that no longer fits and old magazines.
Document Your Current Space
It may be easier to let go of your home if you can remember how it once looked. Take pictures of rooms in your house before you start downsizing. It can be comforting to look back at your old place or see the progress you’ve made getting it organized. Measure the furniture you want to bring and write down the dimensions to ensure it will fit in your next place. Document furniture arrangements and the placement of family photos on the walls. You can reference these later when you unpack in your new home.
Donate and Sell Items You Don’t Need
Selling unwanted items is a good way to raise extra money for your move. It also helps to clear space, and there’s satisfaction in knowing that your old items will benefit others. You can use websites like Craigslist or Facebook Marketplace to list belongings. You can also try apps like LetGo, OfferUp and NextDoor.com. Make sure to accept only cash offers to avoid scams. You may also want to meet people at a public place for these transactions. For smaller items, or those with lesser value, consider holding a yard sale. Other options include selling to collectors, used bookstores, online auction sites or music stores. Return items to the people they belong to. Is your 40-year-old daughter’s prom dress still hanging in the closet? Ask her if she wants it. If she doesn’t, get rid of it. Some charities, such as the Salvation Army, can pick up items from your doorstep free of charge.
Consider Hiring an Expert
Similarly, professional organizers can help you declutter your home, offer emotional support, facilitate the disposal, donation or sale of unwanted belongings and set up systems that help you stay organized. These professionals work alongside you. They do not provide cleaning services. “It’s like hiring a wedding planner for a wedding,” Mary Kay Buysse, executive director of NASMM, told RetireGuide. “Yes, you can probably do the job yourself. But if you want it done seamlessly and want less stress in your life, then hiring a professional is a smart move.” Buysse said these professionals often offer a menu of services that can be tailored to fit your budget. “It isn’t an elitist thing or something that only people with lots of money can afford,” Buysse said. “Sometimes families will only hire someone for part of the process.” Home-service provider directories like TaskRabbit and Angie’s List are good places to find local help.
4. Cope with Your Emotions
Wading through a lifetime of memories is daunting — and draining. Downsizing can uncover a well of emotions, including sadness, anxiety, stress and grief. According to a 2018 letter from the Harvard Medical School: “Understanding the triggers for these feelings and using strategies to navigate them may not change how you feel, but it may help the downsizing process go more smoothly so you can focus on your next chapter.” If you find yourself in emotional turmoil, talk to someone. Invite a friend or family member over to help you sort through rooms. Loved ones can listen to you reminisce about sentimental objects while providing you with a gentle push to let go of things you no longer need. “If something’s been a part of your home life for 40 years, it’s not easy to say goodbye,” Buysse said. “Our items tend to become like members of the family.” Even venting to an old friend over the phone after a stressful day of decluttering can calm your nerves and keep you focused. If you don’t have someone to lean on, consider professional help. You may want to visit your primary care doctor or speak with a therapist.
Find the rest of the article here: https://www.retireguide.com/guides/downsizing-for-retirement/