If this sounds familiar, it may be time to consider downsizing for retirement.
Especially for families, once the children are out of the house and you’re preparing for retirement, you’ll likely find yourself with more square footage (and things to fill it) than you need. Scaling back your home and possessions can be a tough process, but it can also give you more freedom, financial resources and peace of mind.
The Benefits of Downsizing
Besides just being practical, there are a number of benefits to downsizing your home and possessions:
- You can save money. From your house payment to your utility bills, a smaller home means smaller costs. And when you cut back on your mortgage and utility expenses, you free up money in your budget for travel, investments or savings.
- Fewer maintenance hassles. You’ve probably heard the saying, “If you have a house, you have a hobby!” The more house you have, the more maintenance you’ll have to perform. By downsizing to a smaller home, renting a condo or joining a maintenance-free community, you save money on the costs of home repairs, and eliminate hazardous home improvement tasks.
- Improved mental health. Reducing clutter has been shown to reduce anxiety and stress, while simultaneously improving mood and relaxation. By strategically downsizing your possessions, you’re boosting your overall well-being and mental state. You’re also lowering the risk of physical health risks like tripping over that box of books you forgot to donate!
Scaling Back Your Housing
If you think downsizing is the right path on your trek toward retirement, most people start with their house. After all, when it’s just you or you and a partner, you don’t need a whole lot of space.
However, keep in mind that selling your current home will carry additional costs that you will need to consider.
- Prepping the house for market. Even if your house is in stellar condition, it will probably need some updates and repairs before it can be put up for sale. Talk to a realtor to get a feel for what updates you should prioritize in your house, then calculate the costs so you can prepare accordingly.
- Closing costs. Most house sales involve closing costs, and as a seller you may be responsible for some of these costs. Closing costs are typically 3–6% of the home’s selling price, and on a $200,000 home that means you’re looking at spending $6,000–$12,000. You may be able to negotiate these costs with the buyer, but make sure you factor closing costs into your financial plan.
- The price of moving. The very idea of spending a day moving makes most of us groan. The process is grueling, and the costs can be just as bad. If you hire full-service movers for an in-state move, you’ll most likely pay between $550 and $2,000. For an out-of-state move, you can anticipate costs up to $7,000.
- Tax implications. Another factor to consider when selling your home is the tax implications. Unless you make a high profit on your home’s sale, you most likely won’t have to pay taxes on this money. However, if you’re moving to an area with higher property taxes, this will significantly increase your mortgage payments and you may not end up saving much in the long run.
Trimming Back Possessions
When you choose to downsize your home, often you’re choosing to sacrifice some space. Part of downsizing your lifestyle will include getting rid of excess possessions, too. You can donate your items to a charitable organization (and, in most cases, get a small tax break in return), or you can sell them online to make a little extra cash.
Items you may wish to downsize could include:
- Clothing
- Furniture
- Exercise Equipment
- Books
- Decor
As the saying goes, anything that you haven’t used in the past year, you’re probably not going to use again. Dig into your closets, basement and other storage areas and if you find items that you haven’t used in a year (or longer!), give them the boot.
Paying Off Debt
Yet another way to cut back your expenses: paying off debt. Studies have shown that high debts are often correlated with high rates of stress and depression, and the average American has over $15,000 in credit card debt. By strategically paying off your debts, you not only downsize your spending, but you may also improve your mental health. Plus, you free up even more money every month that can go towards the things that are really important.
Planning Ahead
Once you’ve downsized your home, there’s still one more financial factor to put in place before retirement.
Choose a senior life insurance policy to ensure that if you do incur heavy medical debts or other expenses, your loved ones will not bear this financial burden after you pass away. The best life insurance for seniors covers your final expenses and provides your family with a safety net so you can truly have peace of mind during your retirement. Not sure what type of life insurance will work best for your financial situation? Contact an Americo Senior Life representative today for a quote!