When people feel like they may not have enough money saved for retirement, they may think about selling their homes to reduce their monthly costs. Even those who have saved may consider downsizing their homes as a way of making the most out of the money they have in retirement. After all, retired couples often do not need the same amount of space that they once did after their children moved out and started their own families. Certainly, downsizing your home or moving to a less expensive area can save you money, but it does not always make sense to take this step during retirement. Ultimately, individuals need to think about the total costs involved with this decision and whether or not they will actually save money as a result.
The Numerous and Sometimes Intangible Costs of Selling a Home
Selling a home is a considerable investment. Often, individuals need to pay for some updates or a facelift to maximize the price that they get. In addition, sellers frequently need to pay Realtors a commission, which can total 6 percent or even more of the total sale price. Another consideration is capital gains taxes, which can take a large chunk out of earnings if individuals make a lot of money during the sale. Beyond these costs, retirees could also potentially face expenses involved in moving to a new space, which could range from purchasing or renting a new home to paying for the cost of movers. Closing costs can consume even more money. Furthermore, people often find themselves needing new, smaller furniture for a smaller living space. Other incidental costs may also arise. Another issue is the fact that people often think that their homes are worth more than they actually are.
Selling a home may also involve some intangible costs. These costs also deserve some consideration before a decision is made. Particularly when people move to a new area, they will have to say good-bye to friends, family members, doctors, community members, and others. These relationships are not easy to rebuild in a new place, which can make individuals feel somewhat lonely once they move and result in some regrets about their decision. Plus, our homes have a lot of sentimental value. People should avoid treating this decision too lightly and find themselves wishing that they had followed a different path. For many people, staying put is worth the extra expense in retirement.
When Moving to a New Home in Retirement Can Make Sense
Some people may put themselves in a better position by moving. Perhaps moving will bring them closer to family members or make it easier for them to run their weekly errands. Another important consideration relates to health. As people grow older, they may begin to experience mobility problems, which could make it appealing to move into a home with greater accessibility, such as one without stairs. Of course, individuals can often make their current homes more accessible, but the costs involved can be high, making it more appealing to find a new one. As health concerns become more serious, individuals may end up needing some assistance, which could also influence their decision to move.
Another point to keep in mind is that many retirees successfully boost their monthly retirement income by opting to downsize. According to a study published by the Boston College Center for Retirement Research, individuals who move from a $250,000 home to one that costs $150,000 can net $6,250 annually from the decision. This gain translates to an additional $520 per month, which is a lot of money for the average retiree. Of course, this number is only theoretical. Before making the decision, retirees should create a budget that takes into account utility costs, commuting expenses, insurance needs, and other monthly expenses related to both homes to figure out how much they could potentially save with the move. This figure will often make it much more clear whether or not the decision is the right one.
Choosing a Middle Path When It Comes to Relocating in Retirement
Retirees may want to consider a third option other than relocating to a new home or keeping their current one. This third option involves renting out their current home and then moving to a smaller one. The rental proceeds can help to put a lot of money in the bank without involving many of the expenses mentioned above. Of course, renting a home can also involve a number of costs, such as hiring a management company to dealing with losses if your home goes unrented for a month. However, these costs are generally much less than those involved with an outright sale, especially if the value of your home is expected to increase in the years to come.
People may choose this third option for a number of different reasons. Some may simply want to test out a smaller place while having the option to move back to their home in case they decide that they made a bad decision. Others may want to keep the home in the family so that they can will it to their heirs. Retirees may also simply not want to go through the hassle of a sale, or they may want to have the freedom to relocate easily with the security of knowing that they already own their home should something happen. As with the decision to sell, it is important to think about the expenses involved and the rent that you can potentially secure to ensure that the deal is worth the hassle.