Develop your downsizing strategy

Thinking about moving to a smaller home in retirement? It’s a big decision. But you’re in good company—almost 42% of Americans plan to downsize their home in retirement.1

Here are a few ways to help you develop a strategy for downsizing.

Evaluate your reasons for moving

Your home is one of your biggest assets, so selling it—especially in a strong housing market—can help you achieve the retirement of your dreams. But are you really ready to leave? Selling a home you’ve been in for years is so emotional.

Here are a few things to consider to keep your emotions at bay, and stay focused on your goals:

  • Reduce costs – A smaller home can mean less maintenance, lower heating/cooling bills, and lower insurance premiums.
  • Less upkeep: Smaller yards have less to mow, rake, water, or mulch. And in condos or apartment buildings, you might not have that responsibility at all.
  • More freedom: Spending less time and money on home maintenance means you can spend it on travel or other leisure activities. And you might feel more comfortable leaving an apartment, condo, or small home empty for longer stretches of time while you travel or snowbird. 

Plan for immediate costs

Sometimes you have to spend money to make money. And downsizing can be one of those times. Selling, moving, and buying a new home will all come with some upfront costs that you should be prepared for.

  • Selling your home: To get the highest sale price on your current home, you’ll likely want to make some improvements— almost 80% of sellers complete at least one improvement project before putting their home on the market.2And don’t forget to mentally budget your real estate agent’s commission, which can be up to 6% of your home’s sales price.3
  • Moving: For local moves, you’ll most likely pay between $80 to $100 per hour.4 For out-of-state moves, costs will depend on distance and the number of belongings you have, at a typical cost between $1,200 and $5,000 for more than 100 miles.4Earn a little bit of money back, and save on moving costs, by selling or donating some of your belongings before you move.
  • Buying a new home: You’ll need to account for additional costs that come with getting a new home, like closing costs, or a pre-sale home inspection—which can cost an average of $337.5 And, budget for HOA or community fees. Great perks come with apartments, condos, and neighborhoods with HOAs, like pools, common areas, groundskeepers, and maintenance workers. But fees to support these amenities might not be included in your rent or mortgage, and cost $200 per month, on average.6

Understand any tax implications

If you sell your home for more than you paid, it counts as a capital gain that might need to be reported on your federal tax return. Luckily, up to $250,000 of profit—or $500,000 for married couples filing jointly—can be excluded as long as the tax break hasn’t been used on another home sale within the past two years.7

There are also partial exclusions if you’re not eligible for the main exclusion. And you might be able to exclude some of your capital gains tax if you sold your house because of work, health or an unforeseeable event, so make sure to check your qualification. Make sure to keep all receipts for home improvements too—these updates could cut your tax bill as well.8

Ready to make your move?

Learn how a Premier Advisor can help you live comfortably in this next stage.