Editor's Note: This story originally appeared on NewRetirement.
The decision to relocate for retirement can be an emotional roller coaster, hugely exciting and a massive financial event. While some people buy bigger, grander or more expensive retirement homes, downsizing for retirement is the savvy strategy — especially for those of us who have not quite saved enough for our golden years.
The Transamerica Center for Retirement Studies has found that approximately 40% of retirees move after retirement.
Here are 15 tips for successfully downsizing for retirement. Relocate for a profitable, comfortable and happily ever after!
1. Understand Your Goals for Downsizing for Retirement
Before you even think about where you might move, establish goals for downsizing. You probably want to have two goals:
Your financial goal: How much money do you want to release from equity or save every month on mortgage payments?
Your lifestyle goal: What is important to you about this move? Friends, family, health care and senior services, weather, activities, amenities, etc.
Transamerica research found that the following are the most important criteria for retirees deciding where to live:
- Proximity to family and friends (53% of retirees)
- Affordable cost of living (53%)
- Access to excellent health care and hospitals (41%)
- Good weather (35%)
- Low crime rate (30%)
Keep these goals in mind at every stage of your relocation and stick to them.
2. When Is the Best Time for You to Downsize?
Timing is everything. However, there are a lot of factors to consider: housing values, the strength of the real estate market, interest rates, and — of course — your lifestyle goals.
If you are downsizing early on in your retirement, then you will want to be careful to manage your money for the long haul. Delaying downsizing can usually help preserve your wealth.
3. Where Are You Going? What Kind of Home?
You can downsize across town or to the other side of the globe. You may want to look at the best places to retire lists. There are lists for anyone and everyone: best weather, best medical care, best for hippies, cheapest places to retire and more.
And, you have so many different options for the kind of home you will live in: a smaller house, a tiny house, an apartment, a houseboat, an RV, a less expensive community with bigger homes, a senior living center or over-50 communities and more.
Some people even downsize to a cruise ship a hotel or other unexpected locales.
4. Retirement’s Big 3: Travel, Grandkids and Leisure
In retirement, one or all of these three things are usually important to happiness: travel, grandkids and leisure activities.
When downsizing, you really want to make sure that you think through how the move will impact these “Big 3.”
- Travel: Will downsizing enable you to afford to travel? Are you near an affordable airport if flying is in your future? Have you considered renting out your home to help you pay for trips? What is the rental market like where you are moving?
- Grandchildren: So many people opt to stay in the family’s long-time home because they want their grandchildren to experience what their own children experienced. However, grandkids don’t always experience the family home in the way you think they will — if at all (depending on where they live). If you are committed to moving, have you considered how the new location will impact the kids and grandkids? Will you have room for everyone to visit?
- Leisure: Think about what you like to do. Make sure wherever you live affords you those opportunities.
5. Be Realistic About Real Estate Costs
Buying and selling homes can be an expensive and volatile endeavor.
Selling Your Home: Talk to a few different real estate agents. Find out how each one would approach the sale. What — if anything — do you need to do to get the best possible price (painting, repairs, staging, other)? How would they price your home and why? How does their proposed asking price differ from what they think will be the actual sales price?
See if you can negotiate the commission of the agent who will be helping you sell your home.
Buying Your Home: Too often we underestimate how much it costs to buy the home we really want. Research your options carefully.
There are tons of online home search options that can help you get an idea about what is available. However, there is no substitute for talking with an experienced real estate agent and touring houses yourself.
Have You Considered Renting?: Buying and owning a home can be expensive: down payments, closing costs, taxes, insurance, maintenance and upkeep are significant costs. It may be cheaper for you to rent, and renting keeps all of your home equity available for monthly cash flow.
6. Make Downsizing Part of Your Overall Retirement Plan
Housing is one of the biggest levers you have for achieving a secure retirement. For most people, their home is more valuable than their retirement savings.
As such, you want to make sure that you have a retirement plan that enables you to model your downsizing options.
7. Visualize Your Future Retirement Life — Better Yet, Spend Significant Time Trying It On!
The more real you can make your future move ahead of it actually happening, the more successful you are likely to be.
Imagine what your new life will be like. Think about all the different things you like to do and imagine doing those things in your new location.
Better yet, spend an extended vacation where you think you would like to move. If you don’t absolutely love it, don’t be afraid to change plans.
Can’t afford this kind of vacation? Can you arrange a house swap? Or, could you do a short-term rental on your current home while you are trying on your new destination?
8. Compare Maintenance Costs
When making a downsizing-for-retirement decision, you will want to look at total homeownership costs. If you are downsizing to save money, you need to be careful about your decision-making.
Besides the value of your home, you will want to compare all of the other costs associated with where you are now with the costs where you want to be:
- Insurance: Insurance costs can vary significantly based on location. For example, if you are moving to a coast, watch out for flood insurance.
- Utilities: Talk to your real estate agent about average costs for heating, cooling and all other types of utilities. Compare those with what you are currently paying.
- Maintenance: A smaller home will usually cost less in maintenance, but not always. A good real estate agent should be able to help you anticipate these costs.
9. How Will Your Overall Cost of Living Change?
You probably don’t want to move to a much smaller house only to find that everything else in your new home and community costs a lot more.
CNN has a cost of living calculator. It allows you to compare your current town to where you want to move and see how your spending would change for: transportation, groceries, utilities and health care.
Beyond your housing expenses, health care and transportation are what will cost you the most in retirement.
10. Speaking of Health Care …
Health care deserves special mention. The availability and costs of health care and health care outcomes are not equal across the U.S. or the globe.
In fact, within the United States, there is a 21-year difference between the counties with the longest average life expectancy (87) and those with the lowest (66). Learn more about how where you live may determine how long you live.
11. Have You Considered Taxes?
If you are moving out of state, you’ll want to compare your current tax situation to the place you will be downsizing for retirement. A few things to think about:
- State Taxes: State taxes — both income and sales — can be a considerable factor. Here is a list of the best states for retirement taxes.
- Write-Offs: If you have an outstanding mortgage on your existing home, you are probably getting a tax break on those costs.
- Tax-Free Boost to Savings: Buying a less expensive home can give your retirement savings a tax-free boost. When you sell your primary residence, up to $500,000 of capital gains for married couples filing jointly, or $250,000 for individual filers, is tax-free. For more information, see I.R.S. Tax Topic 701.
12. Explore Alternatives
Downsizing for retirement is not the only way to save money on housing.
Get Creative: If you like your current lifestyle, you might want to explore renting out a room in your existing home. Or, is there a way for you to turn a garage or other space into a studio apartment? Renting out your entire home when you travel might be another option.
VRBO and Airbnb are really easy ways to turn your home into income.
Reverse Mortgages: If you want to stay in your existing home, but need to improve your finances, a reverse mortgage may be a good option for you.
13. Think About Downsizing Belongings — Not Just the Size or Cost of the Home
For better or worse, many of us get attached to things. One of the most difficult aspects of moving — especially downsizing — is sorting through your possessions and paring down what you own.
A few tips for this difficult task:
- Start thinning out your possessions at least three months before you move. Do not underestimate the magnitude of this task.
- Try reading the best seller, “The Life-Changing Magic of Tidying Up.” The basic philosophy of the book is that you should only keep things that genuinely make you happy. Everything else MUST go.
- Involve your kids or friends. They may be able to help you make decisions.
- Consider hiring an organizational expert.
- Do not move something you aren’t SURE you want to keep.
14. Plan for Developing New Routines in Your New Location
One of the biggest complaints people have about retirement is that they miss a regular routine — the way having somewhere to go every day organized their lives.
This can be compounded when you move to a new location — everything is new. Therefore, it is important for you to develop new routines as soon as possible when you move. Set up a regular coffee date, join clubs or volunteer.
15. Watch Your Budget Closely
You may have planned your move carefully, but watch your budget closely in the first few months after you move. You may be surprised by what you are actually spending.
Be sure to update your retirement plan after a few months in your new location. Compare what you predicted you would spend with what you are actually spending after downsizing for retirement.
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