Downsizing Your Home After 50: How to Unlock Equity Without Sacrificing Comfort

As you approach retirement, does your home seem too big? Downsizing your home for retirement is a common tactic to free up funds while simplifying your life – but there are other ways to achieve these goals. Before you put your house up for sale, make sure the move is part of a sound retirement strategy.

The Appeal of Downsizing Your Home in Retirement

When you retire, your needs change and many times, so do your housing needs. Downsizing your home could help you adapt to this new phase in your life in three ways:

• Location. When you were working, you probably needed to be close to your job, and that limited your options. In your retirement, you have freedom to move wherever you want, and you may be more focused on the local golf clubs than the local job market.
• Size. Many people buy large houses because they need lots of bedrooms for their family. As your children grow and move out, those bedrooms can start to collect dust. Why clean, heat and cool a large house that you don’t need? If you don’t need the space anymore, moving to a smaller house may make sense.
• Cost. If you own a large house near a city, it’s probably worth a lot. By selling it and buying or renting a less expensive house, you can make a tidy profit that will help fund your retirement. Since many retirees are worried about running out of money, the extra cash can be very appealing.

The Downsides of Downsizing

Downsizing can be a practical retirement strategy, but there are downsides to consider.

• You may miss your old home. Your home is more than just a house. It’s a place where you’ve built precious memories. If you sell it, you may find that you miss it.
• You may regret giving up your extra space. When you move into a smaller house, you often need to give away furniture, decorations, collections and other items you no longer have room for. You’ll also have less space for guests, so you may not be able to host family gatherings.
• You may not save as much money as you expected. A smaller house won’t always cost less. Depending on where you move, you could actually end up paying more because of property taxes and homeowners insurance costs. If securing retirement income is your primary goal, you may be better off with a different financial strategy, such as purchasing an annuity.

Should You Downsize Your Home in Retirement?

Before you decide whether or not to downsize your home, ask yourself some questions to make sure you’ll be happy with your decision.

• Do you want to move? If you would prefer to stay in your home, see if you can find other financial strategies that will allow you to do so. On the other hand, if you’re excited about the idea of moving into a smaller house or relocating somewhere new, this may be a good option for you.
• Where do you want to spend your retirement? Do you want to stay where you are now, or would you prefer to move to a different city, state or even country? Consider the type of retirement lifestyle you want as well as things like access to medical care and senior services and where you have family.
• Why are you considering downsizing? Identify your motives so you can determine whether this is really the right course of action. If you want to downsize because you want to save money, calculate how much you could actually save and how you’ll use they money. For example, will you buy an annuity to secure retirement income? Also think about other ways to achieve your financial goals.

How to Downsize Your Home for Retirement

If you’ve decided that downsizing is the right retirement strategy for you, you’ll need to create a game plan to ensure that everything goes smoothly.

1. Work with a real estate agent. A real estate agent can help you assess your current home’s value and get it ready for a successful sale.
2. Go through your possessions. You won’t have as much space, so you’ll need to get rid of some things. Sort your belongings into four categories: things you want to keep, things you want family members to take, things you want to donate, and things you want to throw away. You may need your family to help you with the process. If you want to save some items for your family, but they can’t pick them up right away, consider getting a storage unit.
3. Start looking for a new home. Decide whether you want to buy or rent, and start looking at what’s available. If you are relocating to a new region, you may need to take some trips out there, or you may consider renting a place temporarily before you commit to buying a new home.
4. Make the move. Once you have a buyer for your house and a new home lined up, it’s time to move. Watch out for moving scams! Make sure you’re working with a reputable moving company, and make sure you get an estimate in writing.
5. Decide how to maximize your profits. Hopefully, you’ve received a nice profit from your sale. Now the goal is to make sure this profit goes as far as possible in your retirement. You may owe taxes, but if the house was your principal residence, you may qualify for the maximum exclusion of gain, which is $250,000 for individuals or $500,000 for married couples filing jointly. With any profit you have left after taxes, consider how to best use it.

Turning Your Home Sale Profits into Guaranteed Income

If you have a big amount of cash from your home sale, you need to decide how to use it. Just letting it sit in your bank account may not be the wisest choice. If you go this route, your money will earn little to no interest, and you may have a hard time budgeting it over the rest of your retirement. Stocks other investments are another option, but there are drawbacks here too, especially if you’re worried about short-term market volatility during your retirement.

Another option is to purchase an annuity.

An annuity is an insurance contract that allows you to pay an amount upfront, either in a lump sum or through a series of payments, in exchange for a stream of payments. Many retirees have been turning to annuities as a way to secure guaranteed retirement income. There are different types of annuities, and they all come with different rules and risks, but it’s possible to buy an annuity that will provide guaranteed income for the rest of your life.

If you are planning to use some of your home sale profits to help provide income for the rest of your retirement, putting those funds into an annuity could be a smart option.

The Canvas Forever Fund converts your lump-sum cash into guaranteed income that starts immediately. You can also customize aspects of the annuity, for example, by choosing the payout option that fits your needs. The Forever Fund is a simple annuity option with no commissions, account charges or fees, and it comes with a 30-day money-back guarantee.

Learn more about the Forever Fund.