A report by HomeEquity Bank reveals that many seniors in Canada don’t want to downsize. But 76% of them say their demographic sometimes feels pressured to sell their homes, according to a report on Cision. There are many ways older adults benefit from downsizing, from simplifying their lifestyles to reducing home maintenance costs and addressing mobility issues. When done right, downsizing can help build a better nest egg by investing profits earned after selling your home into a retirement account. However, before you can downsize your home, there are many financial decisions you have to make. To ensure you downsize successfully, check out these budgeting tips for downsizing in retirement.
Consider Your Current Monthly Expenses
The first step to making downsizing less stressful is calculating the cost of living in your current home. Add up all the monthly expenses linked to your house. This might include utility bills, mortgage payments, HOA fees, and maintenance costs. Also, factor in transportation expenses if you must travel long distances to the hospital or visit family. Once you have an idea of what you’ll be spending every month, assess your retirement savings to see how long they’ll last. Then, compare your numbers to what you expect to pay every month when you downsize. Knowing how long your retirement savings will last helps you decide whether to move to a small house or stay in your current home.
Research Cost Of Buying A Smaller Home
Downsizing to a smaller home can be affordable, but experts recommend comparing the cost of buying homes beforehand. Determine how much you can afford and whether you’ll need a mortgage or not. If you choose to take out a mortgage, make sure to get a pre-approval letter early on. In fact, this is one of the most crucial steps to take when submitting a winning home offer. You can also speed up the buying process by giving a huge sum of money for a down payment or purchasing your desired home with cash. Additionally, consider the closing costs and other expenses, like storage fees and hiring a moving company. Doing so helps you decide if downsizing is ideal or not.
Calculate Your Home Selling Price
The idea of selling a home and investing the equity in your retirement savings account can save you from running out of cash after you retire. But before making any decision, find out the cost of selling a home in your region. Think about home inspection and repair costs, realtor’s commission, closing costs, capital gain tax, and mortgage payoff. All these costs can add to your budget, so calculate them before listing your home for sale.
After doing the math, ask yourself whether selling your current home is worthwhile. As a rule of thumb, judge everything based on assets. For instance, let’s say your current savings will last until you’re 80 years old. But when you add your home’s equity to your savings and your funds are projected to sustain you until you’re 90, then you can consider downsizing.
Budgeting before downsizing is an excellent way of ensuring you live comfortably in retirement, especially if you’re living on a fixed income. A budget helps you track small expenses associated with moving to a small house or affordable neighborhood. With a bit of diligence, you can spend your savings efficiently and invest wisely without being blindsided by unexpected expenses.