Most likely your home is your biggest asset. It’s also your biggest expense. Unfortunately, when it comes to retirement planning, the family home is often last on the list of later in life changes.
There are many reasons for this delay
Emotionally it’s difficult to let go of a home filled with memories. Moving can be a big process. For these reasons, many retirees delay for years moving into a smaller house, condo or apartment.
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However, in many cases, the benefits of downsizing sooner rather than later can be significant. The financial benefits may seem small, but they can extend the life of your retirement savings.
Cost of staying in your home
You may have a hesitation to sell a mortgage-free house and move to an apartment with a monthly rent payment. However, with a home, many of the expenses are hidden.
It’s the ongoing maintenance such as roof, furnace, windows, grass cutting and landscaping, snow removal, etc. Not to mention the annual costs of heat, electricity, and taxes on a large older home. These costs add up to a substantial amount.
Selling your home will eliminate any mortgage or other debt, reducing monthly expenses. Add in the income you will earn from investing the equity of your home and the savings from no home maintenance. Compare that to the monthly rental payment of an apartment.
Trading the variable and hidden costs of homeownership for the visible cost of a condo or apartment can help with planning and budgeting. You know what your fixed costs will be.
Let’s do some math
Even without a mortgage, housing often accounts for 30% of retirement expenses. You sell your $300,000 home and move to an apartment that rents for $1500 per month. This allows 10% of the selling price to cover all moving-related expenses. This leaves $270,000 to be invested.
That $270,000 could produce an additional $16,200 of income per year. On top of that, the savings from lower housing expenses could easily be $3000 per year. A total of $19,200 additional income to pay $18,000 in total annual rent.
Besides the financial benefits, this is simply the practicality. Many people fail to consider how the aging process makes it harder to move. The process is exhausting at a young age. It’s much more daunting for retirees.
As we age, illness or death can unexpectedly force a move upon you. Situations like this create stress and havoc for the entire family. In many cases, the bulk of the responsibility falls upon the children.
Making the move before one spouse dies can help prevent the surviving spouse or your adult children from having to empty and sell a big house.
Roy Thomas SRES® (Senior’s Real Estate Specialist) is a REALTOR® with Sutton Group Professional Realty. Since 1991, Roy specializes in helping retirees with their later in life real estate transactions. Call Roy at 902-497-3031 or contact Roy here
