If you’ve been in the same home for many years, and raised your family there, you might have a hard time even thinking about living somewhere else.  But if you’re retired, or you will be soon, you may be asking yourself some questions: Is this home too big? Is it too expensive? Would I be happier in a smaller, more affordable place?

In other words, you might start to think seriously about downsizing. But there’s a lot involved in such a decision. Let’s consider some pros and cons.

First, some pros:

  • You could make money. In recent years, housing prices have risen greatly in many areas of the country, so, if you downsize your home, you could walk away with a tidy sum. And the sale of your primary residence may be exempt from capital gains taxes on the first $250,000 (if you file taxes as a single taxpayer) or $500,000 (if you’re married and file jointly). Generally, you must have lived in your home for at least 2 of the last 5 years, and the exemption is allowable once every two years on your primary residence.
  • You could save money. Even if you’ve paid off your mortgage, you're likely still paying for home costs like insurance, maintenance expenses and property taxes. You could save a substantial amount by moving into a smaller home, whether that’s a house, condo or apartment. If so, your improved cash flow might affect your decisions regarding taking income from your retirement accounts and collecting Social Security.
  • You could make life easier for your future self. As you age, you might find it more comfortable to live in a smaller space, perhaps in a one-level home.

Now, some possible cons:

  • You may need additional storage. By definition, “downsizing” means moving to a smaller space – and that means you may not have room for all your furniture, artwork and other possessions. If you want to keep some of these items, either for sentimental or other reasons, you may need to pay for a storage unit.
  • You’ll have to pay moving and transaction costs. Although you could end up in a better financial position after you downsize, your move likely won’t be cost-free. In addition to moving expenses, you'll probably face transaction costs associated with selling your old home and purchasing a new one.
  • You might feel cramped for a while. After spending many years in a more spacious home, you might feel somewhat confined as you adapt to a new, smaller living space. Over time, though, you may enjoy the smaller footprint and end up feeling “at home.”

These aren’t the only pros and cons to consider, but they should give you a good starting point. You’ll also want to think about the intangible factors: How will you feel about leaving behind a neighborhood you may love? Is your new home closer to your grown children and grandchildren, or farther away? Are you moving to a place that offers good transportation and health care options?

As you can see, there clearly is no one right answer for everyone with regard to the downsizing question. So, take the time you need to weigh the pros, cons and intangibles. Once you consider all these factors, the chances are good that you’ll make the right choice. Finally, selling and buying a home is a big financial decision, so talk with your Financial Advisor and a tax professional about it so you can be better prepared to understand how it will affect your financial strategy.