Should you downsize when you retire?
Long version
When you retire, you’ll experience many changes — should one of them involve your living arrangements?
The issue of downsizing is one that many retirees will consider. If you have children, and they’ve grown and left the home, you might find yourself with more space than you really need. Of course, this doesn’t necessarily mean you must pack up and scale down yourself. You might love your home and neighborhood and see no reason to go. But if you’re open to a change, you could find that moving to a smaller house, a condo or an apartment may make sense for you.
Let’s consider some of the advantages of downsizing:
- You could save money. Moving to a smaller space could lower your utility bills and upkeep costs.
- You could save effort. A smaller home will mean less maintenance and cleaning.
- You could de-clutter. Over the years, most of us accumulate more possessions than we really need. Downsizing gives you a chance to de-clutter. And you can do some good along the way, too, because many charitable organizations will welcome some of your items.
- You could make money. If you’ve had your home for many years, it’s certainly possible that it’s worth more — perhaps a great deal more — than what you paid for it. So, when you sell it, you could pocket a lot of money — possibly without being taxed on the gains. Generally, if you’ve lived in your home for at least two years in the five-year period before you sold it, you can exclude $250,000 of capital gains, if you’re single, or $500,000 if you’re married and file taxes jointly. (You’ll want to consult with your tax advisor, though, before selling your home, to ensure you’re eligible for the exclusion, especially if you do own multiple homes. Issues can arise in connection with determining one’s “primary” residence.)
While downsizing does offer some potentially big benefits, it can also entail some drawbacks. First of all, it’s possible that your home might not be worth as much as you had hoped, which means you won’t clear as much money from the sale as you anticipated. Also, If you still were paying off a mortgage on your bigger home, you may have been deducting the interest payments on your taxes — a deduction that might be reduced or lost to you if you purchase a less-expensive condo or become a renter. Besides these financial factors, there’s the ordinary hassle of packing and moving. And if you’re going to a much smaller living space, you may not have much room for family members who want to visit or occasionally spend the night.
So, as you can see, you’ll need to weigh a variety of financial, practical and emotional issues when deciding whether to downsize. And you will also want to communicate your thoughts to grown children or other family members who may someday have reason to be involved in your living space. In short, it’s a big decision — so give it the attention it deserves.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Edward Jones, Member SIPC
Number of words: 500
Short/radio version
PSA: Should you downsize when you retire?
TBA: Aug. 21, 2023
When you retire, you’ll experience many changes — should one of them involve your living arrangements?
Many retirees do consider downsizing. And there can be some advantages to it. Moving to a smaller space could lower your utility bills and upkeep costs and reduce the amount of maintenance needed. And you might be able to get rid of a lot of clutter that’s accumulated over the years.
Plus, if you’ve had your home for many years, you might be able to sell it for much more than you paid for it, though there are no guarantees.
Of course, as with any major decision, you’ll need to think about potential drawbacks. For one thing, downsizing might mean the reduction or loss of any mortgage interest deductions you’ve been claiming on your taxes. And by moving into a smaller space, you might not have room to have family members stay with you when they visit.
You’ll need to weigh a variety of financial, practical and emotional issues when thinking about downsizing. It’s a big decision — so give it the attention it deserves.
This content was provided by Edward Jones for use by (FA's NAME), your Edward Jones financial advisor at (Branch address or phone #).
Member SIPC
Number of words: 179 (excluding FA’s name, address/phone number)