Downsizing for Retirement: A Step-by-Step Guide PART II

Downsizing For Retirement: A Step-by-Step Guide  PART II 

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.

Selling Your Current Home

Selling a home can be a time consuming, complex process.

But if you’re downsizing in retirement, it’s also important to understand taxes and how profits from your home sale can affect government benefits.

Beware of Capital Gains Tax

The Internal Revenue Service and several states levy capital gains tax on the difference between what you paid for your home — known as your cost basis — and what you sell it for.

The good news is that this probably won’t affect you. You can usually exclude up to $250,000 of capital gains on real estate if you’re single and $500,000 if you’re married and filing jointly.

So, if you first bought your house in the 1980s for $200,000 and you sell it today for $400,000, you won’t owe capital gains tax.

A few things may disqualify you from claiming that $250,000 or $500,000 exclusion. For example, the house must be your primary residence and you must have lived in it for at least two out of the last five years.

If capital gains tax is unavoidable, you may still qualify for a zero percent tax rate in 2021 if your income is less than $40,400 for a single person or $80,800 for a married couple filing jointly.

Otherwise, you may pay either a 15 percent or 20 percent tax rate. It depends on your filing status and income.

The Impact of Selling Your Home on Government Benefits

Owning a home won’t prevent you from collecting certain government assistance benefits, such as Medicaid or Social Security Income (SSI) disability.

But selling your home is a different story. This boosts your income, and the sudden cash may disqualify you from Medicaid and disability benefits.

For example, you must have less than $2,000 in countable assets to keep your Medicaid or disability coverage. Selling your home will net you more than $2,000.

To keep Medicaid, sale proceeds must be legally spent down or protected by the end of the following month.

With SSI, you have three months to buy a new home after selling your old one. If you do so and have less than $2,000 in your bank account, you will keep your SSI benefits.

If you don’t, you will lose your benefits for each month your assets exceed the permitted limit.

If it takes you more than 12 months to spend down money from your home sale, you may have to start the entire disability application process from the beginning.

And keep in mind that you’re not allowed to transfer money to a family member.

There are several legal ways to work around government benefit asset limits after selling a home. Consult a trusted legal professional for more information.

Moving Costs and Other Expenses

According to an October 2020 poll conducted for North American Van Lines, 45 percent of people who recently moved said the experience was the most stressful event in their lives.

One way to cut down on stress is by developing a solid moving plan that fits your budget.

Average Moving Costs

Cost to Rent a Moving Truck

Renting a moving truck, such as a U-Haul, can cost between $90 for a small truck and a local move to $2,000 for a large truck and a long-distance move. The cost depends on how far you’re traveling, how much truck space you need, how long you keep the truck and gas.

Cost to Hire a Moving Company

Hiring a moving company to transport your belongings can cost between $80 to $100 per hour for short distances and $2,000 to $5,000 per load for long distances. Hiring a mover typically costs $25 to $50 per hour for each worker. The overall cost depends on the size of your home and the distance you’re traveling. Moving heavy objects or navigating staircases can cost extra.

Full-Service Movers Cost

According to HomeAdvisor.com, hiring a full-service moving company usually costs at least $2,300, but it depends on distance and the square footage of your current home. You may be able to spend as little as $900 for a local move, or as much as $10,000 for a cross-country move. Make sure to get visual estimates and total cost estimates. Understand the difference between binding and nonbinding estimates to avoid expensive surprises.

Cost to Rent a Moving Container

Renting a moving container can cost an average of $3,000 a month, according to Move.org. Moving containers cost an average of $2.50 per mile to transport. But the total price may be as low as $250 for a small container and a local move to $4,000 for a large container and a cross-country move. You can request a moving container from companies such as PODS and U-Pack. They drop off the container, and you load your belongings into it on your own time. The container company will then pick it up and drop it off at your new location. If you’re downsizing, you may also consider renting a storage unit.

This can allow you to keep items that are too difficult to part with.

Things You May Want to Place in a Storage Unit

• Memorabilia
• Boxes of old family photos and letters
• Oversized items
• Antique furniture or family heirlooms

According to Zillow, the average national cost of a storage unit ranges from about $50 per month for a small unit to $300 or $400 for larger units.

If your main reason for downsizing is to cut costs, you need to be mindful of this added reoccurring expense.

DID YOU KNOW?

As of 2018, you can no longer deduct moving expenses from your federal tax return. There’s an exception for active-duty members of the Armed Forces.

Source: Internal Revenue Service

Expert Tips on Downsizing for Retirement

Vickie Dellaquila is a Pittsburg-based professional organizer with nearly two decades of experience. She is the owner and founder of Organization Rules, Inc. and has given presentations at several national conferences and conventions. She is also the author of the book, “Don't Toss My Memories in the Trash: A Step-by-Step Guide to Helping Seniors Downsize, Organize, and Move."

Be prepared for an emotional journey.

Downsizing is extremely emotional and physical work. You’re going through a lifetime of memories. It’s exhausting. Let yourself experience those emotions, whether you want to cry, laugh or be angry. Giving yourself enough time will also help you process those feelings.

Downsizing takes time — so start now.

You’ve spent a lifetime accumulating stuff. It’s going to take time to go through it all. I always tell people to start now. You may be able to do it in a month, but I tell people to give themselves at least six months. A year or two years is even better.

Put downsizing on your calendar — literally.

When you start the process, put a downsizing session on your calendar, the way you would a doctor’s appointment. So, from 9 a.m. to noon on Saturday, I’m going to work on the kitchen. Stick to it. Try to avoid procrastination.

Start downsizing the unused areas of your home first.

Start with areas you don’t really live in, like spare bedrooms, the basement or the attic. Many times, these spaces have lots of things you aren’t using, or that you forgot you had. The garage is another good place to start because this is usually an exit route. It can be physically easier to move things out of this space.

Get a floor plan if you can.

If you know where you’re moving, getting a floor plan will certainly help you make decisions. It can also help you figure out where everything will go and how much space you really have.

Finding a New Home

When you’re looking for a new residence, take time to consider your needs. Make sure the space fits your lifestyle, budget and level of independence.

You may decide to purchase a new home, move in with family, transition to an assisted living facility or rent a townhouse or condo.

A great freedom in retirement is the chance to live where you choose. You may have bought your former home because it was in a good school district or close to work. Your life is different now, so explore your options.

Look for housing that puts you closer to things you care about, like your family, an airport, public transportation, a grocery store or your favorite nature preserve.

It’s also critical to be realistic about what your physical limitations will be in the future. For example, a one-floor house will be easier to navigate than a two-story house.

Downsizing Without Moving

Moving to a new location isn’t right for everyone. Some people want to stay in their home but still want greater financial independence.

There are a few options if you’re interested in downsizing without moving.

Ways to Downsize in Retirement Without Moving

Rent Out a Room

Renting a room in your home, or even converting the property to dual occupancy can increase your monthly income. But be careful and selective with potential renters. Speak with a legal advisor who can help you draft a simple lease agreement for your new tenant. Research your rights as a landlord. Lay out clear ground rules and restrictions before you let someone move in.

Consider a Reverse Mortgage

Some seniors opt for a reverse mortgage to boost income and age in place. A reverse mortgage allows people aged 62 or older to stay in their homes while drawing on the equity they've already built. But there’s risk involved and a long-term financial impact, so make sure to get independent financial advice first.

Pretend You’re Moving and Declutter Accordingly

It’s always a good idea to declutter and organize your space — even if you’re not going anywhere. Selling unwanted or unused items can also raise money you can reinvest in home repairs or save for the future.

Downsizing for retirement means something different to everyone. It’s often stressful and requires careful planning and financial considerations.

But it can also be a rejuvenating experience. Focus on the positive aspects of the transition, and work toward making your new space feel like home.

Additional Resources

Donation Town

Don’t want the hassle of transporting big objects to your local thrift store? There are dozens of charities that can send a truck to your home and pick up your belongings for free. Enter your zip code into the Donation Town pickup service directory to find nonprofit organizations that offer this service.

National Association of Productivity & Organizing Professionals

If you want to hire a professional organizer to help you declutter your home, the National Association of Productivity & Organizing Professionals can help. Enter your zip code into the organization’s directory, and you’ll find numerous professional organizers and productivity consultants near you.

National Estate Sales Association

This website offers multiple guides about estate sales and how to sell personal property.

To connect to RetireGuide:     https://www.retireguide.com/guides/downsizing-for-retirement/

Submitted by:  Carolina Jimenez     cjimenez@retireguide.com     407-545-2797

Written by:  Rachel Christian, a writer and researcher for RetireGuide.  She covers annuities, Medicare, life insurance and other important retirement topics.  Rachel is a member of the Association for Financial Counseling & Planning Education.

Financially reviewed by:  Ebony J. Howard, CPA