Many retirees choose to downsize as a way to save money — but they may be better off staying put, experts say
By Deborah Jeanne Sergeant
Once your children have left the nest and you’re looking forward to retirement, it may seem like downsizing should be part of the natural transitions at this part of your life. But if you want to stay in your home, you have many reasons to do so other than nostalgia.
Downsizing may not be less expensive than staying put.
“A lot of people consider downsizing and getting a smaller place but not necessarily getting a less expensive place,” said Jeff Feldman, Ph.D. and certified financial planner with Rochester Financial Services in Pittsford. “They move into a townhouse but it’s actually a little more expensive.”
While they may not need to pay for maintenance in a townhouse — snow removal and mowing are usually included — there may be homeowner’s association dues along with the lease. Often, these communities are in locations where taxes and utilities are higher.
“You’re paying so much more for this townhouse and you’re getting so much less,” Feldman said. “I recommend just staying in their house. It’s nicer and they have more space.”
There’s also the temptation to buy a nicer albeit smaller house. Even if it’s smaller, the expensive dreamhouse won’t save the retiring couple any money.
“Downsizing in theory is a good idea, but it doesn’t always work out how people expect,” said Elizabeth A. Thorley, certified financial planner and president and CEO of Thorley Wealth Management in Pittsford. “It doesn’t always lead to lower expenses. Homeowners usually buy a house that’s at a same or greater value or better location. They usually pay the same amount of money. Be clear on what your goals are on downsizing.”
Your home may represent a significant amount of your equity. Thorley said that people need to view their homes as a financial asset that if they sell, they’ll have money to consume, invest or both.
“When people do downsizing, they think of real estate as an investment to supplement their retirement income,” Thorley said. “What is the reason someone is thinking about downsizing?”
If you don’t need the money and like your home, staying makes sense.
Thorley added that you should also consider if heirs want your home. One way to do that is to do a private annuity with a family member.
“Sell the home to your kids in a private transaction and the payments would give you extra income,” Thorley said.
The reverse mortgage was overhauled in 2013. Changes in laws offer homeowners more protection, greater counseling and have reduced the upfront cost, making them “a more viable choice,” Thorley said. “They wouldn’t have monthly payments on the mortgage. There’s no payment while they’re living in the home. It can be another alternative for individuals who want to stay in their home and want to access their home equity.”
Many people want to age in place where they raised their families and have lived for decades. They feel emotionally attached to the home where they have so many happy recollections. Depending upon your future health needs, “aging in place can be a good alternative to a nursing home because there’s a significant cost to outside the home care,” said Adam Mark, certified financial planner and president of Wealth Management Group, LLC in Rochester.
Staying home with the support of home health aides is definitely less expensive.
Mark recommends working with a care coordinator or a service that specializes in elder care to assess any obstacles to aging in place. If you’re undertaking any home renovation projects, keep these suggestions in mind to allow aging in place. Including many of these features can add value to your home once you or your heirs do decide to sell.
For example, during a bathroom renovation, choose sink plumbing that comes through the wall and not the floor to accommodate a wheelchair accessible sink. Keep doorways wide enough for a walker and wheelchair.-Consider a walk-in shower, first-floor laundry and first-floor bedroom.
“Try to plan these things earlier than later to make sure your home is set up for you to stay there,” Mark said. “We talk with clients early on about caring for aging loved ones, well before someone needs this. Start laying the foundation earlier is of huge importance.”