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Did you know that over 18 million homeowners in the United States are considered to be house poor according to recent analysis by Lending Tree?
As the cost of home ownership continues to rise across the country a consistent theme we’re seeing savers face, is a burden that could seriously hinder their ability to retire.
In today’s blog we want to talk about 6 key pro’s and con’s of a common strategy people use to combat being “house poor” which is downsizing in retirement.
The first potentially positive outcome of downsizing in retirement is that it can put more money back in your pocket.
Larger homes tend to come with larger expenses, whether it be a larger mortgage, larger maintenance, larger utility bills, larger taxes or larger repairs.
These are all costs that can impede your ability to save and don’t necessarily provide a return on investment for your money.
Downsizing in many cases can help to slash the cost of living, which in turn can allow you to do things like save more, potentially invest more, or maybe just do more things that you enjoy doing.
The second potential positive that can come from downsizing is freeing up your time.
A quote that we think applies here, “Time is our most valuable asset because once it’s gone, you can never get it back”.
As you probably know, there are many unknowns and even unwanted things that come along with homeownership.
A leak in the roof, a broken pipe, a faulty appliance, whatever it may be, these situations can derail you from your day and not only take up your time but also potentially add unwanted stress in retirement.
Downsizing may lead to less of these headaches. If you have less home or less property, the hope is that any hiccups that come along with it should be less as well.
The third potential positive is that downsizing can lead to less stress.
There are different factors that can lead to this feeling, depending on the person or people, but what we commonly see is some combination of having more freedom, having less chores, having a simpler life, and the ability to fully immerse oneself in the things you want to do in retirement.
As with most decisions in life, there are potential downsides to weigh out too.
The first potential hurdle to downsizing is quite obvious in that you will have less space.
After years and even decades of living in your home, you have probably accumulated more stuff whether it be clothing, or tools, or even items in the kitchen stored away that you haven’t used in forever.
Coming to grips with the fact that your storage space could be smaller than what you’re used to will require some planning and an understanding of what you want to keep and what you actually need.
The next potential downside to be aware of are the hidden costs or the costs we don’t think of when making a move.
Moving can be expensive when you take into consideration costs associated with the actual move, finding storage for any items you might not be able to fit in your new home but still value, or even with the real estate transaction itself.
Setting an expectation and budgeting for all of these costs can help you mentally so you are not caught off guard.
Another potential downside to be aware of is the emotion involved in leaving a home which could have brought you years and years of memories.
In having these conversations time and time again, different folks have different memories, but some of the most common include the enduring the struggle of hardships faced to pay the bills when first moving into the home, watching family members on their journey over time and attributing certain milestones with the home.
The emotional sense of pride and identity tied into the home can definitely be something that is tough to let go of in the transition, but a mindset shift to embracing the good memories and how far one has come can help to overcome this hurdle.
The Final Word:
Of course, this is not a one-size fits all strategy. For some, downsizing may make sense and for others, staying in your current residence may be the right choice. Having a conversation with your trusted professionals can help bring you confidence in your decision.
Thanks for reading!
- The Rockline Team
- Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Islip Terrace, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
Rockline Wealth Management is not associated with Medicare or any governmental organization. All information presented is believed to be factual at the date of publication.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio.
Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The opinions expressed and material provided are for general information, and should not be considered a solicitation of financial advice or for the purchase or sale of any security.
Real-life and fictional examples given in this video should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.