3 Reasons to Downsize

March 20, 2017

Thinking of downsizing your home? Many retirees and pre-retirees do.

In 2015, 31% of all homes sold in America were purchased by Baby Boomers.^[1] That means millions of people over the age of 52 are indeed relocating, with just over half of those downsizing.

While there are pros and cons, downsizing (or moving) during retirement is never an easy decision.

What follows are some of the benefits and drawbacks of making the move to a smaller dwelling. Remember, none of these points is completely independent of the others.

The Advantages of Downsizing

1) More Money to Invest

Are you thinking of downsizing to lower your expenses, save money and invest?

Whether or not that’s a good decision for you depends on a number of things, including:

• The current state of the housing market
• How much of your home you own
• Where you’d consider moving
• How much money you’ve already saved
• How much money you’re going to need in the future

Your retirement may well last three decades, or longer. If you are living in “too much” house, with big utility and property tax bills, as well as insurance, upkeep and repairs, the cost of owning that home amounts to a whole lot more than just a mortgage.

For both financial and quality of life reasons, even for those people with ample resources, I’m often supportive of the desire to downsize. Here’s an example:

I advise an empty-nest couple who sold their large home in California for $1.3 million. Huge fans of country music, they were able to add $350,000 to their existing diversified portfolio, and still purchase three condos near Nashville, TN (which has no state income tax).

After five years, they sold one condo for a nice profit, they kept one as a rental, and they live in the third (when not traveling the country in their RV).

Simply, they now pay significantly less in property taxes, they pay no state income tax, they increased their monthly income, and they both diversified and added to their investments, all by selling a house that was too big for their needs.

2) Early Decisions Give You Flexibility and Freedom

Just as almost 60 percent of people are forced to retire earlier than they’d planned,^[2] one of the big advantages of selling the big house before you might have to is that it puts you in charge of your financial life while also giving you the most flexibility.

Even for people with many millions of dollars saved, it’s possible for a house to become an albatross. If you suffer a health setback, and need to sell quickly (say, you can no longer make it up the stairs), what happens if the housing market is down?

You could find yourself forced to sell at a bad time.

Conversely, along with freeing up cash to invest, the most common reasons I hear for downsizing are: the chance to lighten the load, the opportunity to travel (more often), and the desire to seize upon and enjoy new found freedoms.

3) Relocate to a Dream Location

Some people downsize to be near family. But others are motivated by the chance to live in a warmer climate, have better scenery, or be near water.

For these individuals, downsizing is the realization of the desire to move to a place they’ve dreamt of living their entire life.

Tough to argue with that.

The Downside of … Downsizing

1) Emotional Aspects of Leaving a Home

For many people, the most difficult part of downsizing is leaving behind all those memories. Everyone is unique, and it’s nearly impossible to predict the impact of such a decision.

I’ve found there’s a timeline for the process that goes something like this:

When the nest is empty, but just before retirement, many people/couples begin to think about downsizing. The first five years of retirement is when these moves seem most likely to occur.

After that? The longer people stay in a house, health permitting, the more likely they are to stay for the duration of their lives.

2) Know the Current Housing Market

This is important in just about every city, but it’s especially true in volatile markets like California, where home values can fluctuate tens of thousands of dollars (or more) in just a few months.

When you retire and elect to downsize, you may be selling a home for the first time in a decade (or longer). Things have changed.

So what should you do?

Aside from knowing the overall strength of the economy, when looking for subtle home pricing trends, know your market:

Analyze the amount of local sales activity
Is commercial building infrastructure increasing, or has it slowed?
How are the schools ranked?
What do your neighbors’ homes look like?
Meet with loan experts at several banks
Talk to an advisor
Speak with real estate agents who know your area
Talk to your neighbors (but don’t get caught up in hype)

Remember, information is the ultimate asset. Often, the decision to downsize before you have to gives you the power to maximize the process.

Conclusion

In 25 years as an advisor, many of my best moments have come during meetings with long-time clients who have recently pulled the trigger and downsized. The sense of rebirth, the ear-to-ear grin on their faces, the “we finally did it” expressions; those are incredible moments for everyone in the room.

To be sure, not everyone has to downsize, or even wants to. But sooner or later it’s a decision most of us are faced with. Simply, take a personal inventory of the emotional toll, consider your short and long-term goals, and then do the necessary research to decide if downsizing is the best choice for you.

[1] Trulia.com January 5th, 2016

[2] USA Today June 2nd 2015

Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy

Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.

HMRN Insurance Agency, LLC license #0D34087

¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Important Information

The information presented is for educational purposes only and is not intended to be a comprehensive analysis of the topics discussed. It should not be interpreted as personalized investment advice or relied upon as such.

Allworth Financial, LP (“Allworth”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of the information presented. While efforts are made to ensure the information’s accuracy, it is subject to change without notice. Allworth conducts a reasonable inquiry to determine that information provided by third party sources is reasonable, but cannot guarantee its accuracy or completeness. Opinions expressed are also subject to change without notice and should not be construed as investment advice.

The information is not intended to convey any implicit or explicit guarantee or sense of assurance that, if followed, any investment strategies referenced will produce a positive or desired outcome. All investments involve risk, including the potential loss of principal. There can be no assurance that any investment strategy or decision will achieve its intended objectives or result in a positive return. It is important to carefully consider your investment goals, risk tolerance, and seek professional advice before making any investment decisions.