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

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

By Rachel Christian • Financially Reviewed By Ebony J. Howard, CPA • Updated: June 14, 2021 • 31 min read time

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.

Determine Your Reasons for Moving

Moving is a stressful experience at any age. Downsizing for retirement carries unique challenges.  Before you get started, determine why you’re moving.

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.

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. 

Financial 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

Americans aged 55 and older spend roughly $90 billion on home renovations each year — 47 percent of the national total. 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.com. “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.

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.com. “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.

You can find free detailed plans for two-year, one-year and six-month timelines on HomeTransitionPros.com.

The website also offers a 15-minutes-per-day plan along with a “Planning for Downsizing” workbook with checklists and activities to help you prepare.

Be Ruthless — and Realistic

It’s easy to fall in love with objects — and often very difficult to let them go

.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.

“Downsizing involves letting go of 70 to 80 percent of the belongings it took you 20 to 30 years to accumulate,” said ANNA NOVAK, DOWNSIZING EXPERT AND OWNER OF SIMPLY DOWNSIZED LLC.

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.

Another option is a website called Give Back Box. Just pack your unwanted items in a box, go to the website and print out a free shipping label.

The box will then be mailed to a local charity. Give Back Box will even email you a receipt for a tax deduction.

Consider Hiring an Expert

A growing industry of professionals offers services to help retirees downsize.

Senior move managers specialize in helping older adults and their families with the emotional and physical aspects of relocation or aging in place.

They even have their own trade organization — the National Association of Senior Move Managers, or NASMM. Its membership has grown from 650 in 2012 to roughly 1,100 in 2020.

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.

Costs can vary by state and job, but rates usually range between $75 and $150 an hour.

That may seem pricey, but the time and effort you save might be worth it.

“It’s like hiring a wedding planner for a wedding,” Mary Kay Buysse, executive director of NASMM, told RetireGuide.com. “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.

You can also use the NASMM’s online directory to find a senior move manager near you.

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