September 15




The family is playing fantasy football this year.  For those of you who haven't been introduced to the concept, you draft players, and if those players on their various teams score touchdowns, you get points.  

It makes you root for strange scenarios.  You may hate the New England Patriots (which I do), but if you have their running back on your team, you have to root for him to score. 

The puppy, Penny, can now go up stairs but not down.  Several times a day, she races up to the second floor and then whimpers for us to come get her. It would be annoying if she weren't so darn cute.

We went to a new church last Sunday, and Jesse really liked it.  I'm pretty sure it had something to do with the donut holes.

Many Baby Boomers find that most of their assets are equity in their homes. In conversations with me, they say, “Dave, a big part of our retirement plan is to downsize our house. It will give us a big financial boost to help us out.”

Let’s think about that idea for a second.

Let’s assume:

  • You own a single-family house in the area.
  • You enjoy living there. You’ve made it your home.
  • You decide to downsize to fund your retirement and lower your budget.

Ok. So now let’s think about your options. Where are you going to move?

  • A smaller (not-as-nice) single-family home
  • A townhouse
  • A condo
  • A manufactured home

That’s not to say there aren’t situations where downsizing makes sense. There are. Keep reading, and we’ll get there.

But first, let’s assume your house has been your sanctuary for most of your adult life. You love it, but you’re considering downsizing for more retirement money.

Downsizing for savings is often a daydream, not a reality.

For example, let’s say you own a $600,000 single-family home with no mortgage.

You decide to move into a townhouse. A halfway decent townhouse will cost you $400,000 at an absolute minimum. Don’t forget about the HOA fees. That could be hundreds a month. And don’t forget about moving costs, paying the realtor a commission, redecorating, or making minor repairs …

You now own a $400,000 townhouse (which you may not like as much as your last home).

Sure, you have $120,000 in the bank (after fees, commissions, closing costs, etc.). And, yes, that $120,000 can produce about $500 monthly in dividends and interest. But you are almost exactly where you started. You may save a couple hundred dollars monthly (HOA fees and increased property taxes won't help).

Is it really worth it?

Another example: Let’s say you own a $600,000 single-family home with a $200,000 mortgage. You are paying $1,300/mo on the mortgage that you’ve had for well over ten years.

You decide to move into a condo. You sell the house, pocket the $350,000 (after commissions) and find the condo of your dreams.
Actually, that’s not entirely true. Barring some real estate miracle, a $350,000 condo will not be as nice as the house you just sold.

Now come the HOA fees. Condos are notorious for high fees, which can change at the drop of a hat. Also, don’t forget you may get a letter from the condo board that says, “We decided to replace the roof, and we’re going to charge you an assessment of $20,000.” This happens more than you realize.

But now you have no mortgage! That saves you $1,300 monthly in mortgage payments. So, you currently live in a condo you don’t like as much as your house, which needs a ton of work. You have a new $600/mo HOA payment, and your property taxes have doubled.

Is it really worth it?

Side Note: With mortgage rates at a very high level, selling one house with a mortgage and buying a new house with a new mortgage doesn't make any financial sense. You're going from 3% to 7%, which will almost double your payment.

When does it make sense to downsize?

Here are some examples where it might make sense to downsize.

Your current home is too big. The kids moved out, leaving you with a 3,000-square-foot home with a big yard. Downsizing in this situation often makes sense. While you might not save much money, maintenance-free smaller townhomes can be very attractive.

You plan on a significant downsizing. Moving from a $600,000 home to a $200,000 manufactured home will significantly change budget and spending needs in the future. But most people aren't thrilled at this idea.

You have the opportunity to move in with a family member. This can be especially attractive if your child or relative has an apartment attached to their home or a mother-in-law suite. This is a fantastic way to lower expenses and increase cash in the bank (not to mention bringing your family together).

You have no other retirement assets. This is not ideal, and not the situation for a majority of retirees. But, for those folks facing this reality, selling their home and downsizing to a much smaller space can help them live more comfortably throughout their retirement.

So, before you think downsizing could fix all your retirement worries, consider the long-term financial ramifications. Do the math. Consider the emotional consequences of moving. And move ahead with caution.

Be Blessed,


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