Retirees: Is it time to downsize, even in this real estate market?

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Retirees: Is it time to downsize, even in this real estate market?

2024-03-27 21:43 Last Updated At：21:50

Your home is your sanctuary, but it’s also one of your biggest budget items. And after you retire, it may feel like more house than you need. But in this housing market, when a smaller home with upgraded features may be about as expensive as the one you’re selling, is it still smart to downsize?

In some cases, downsizing is appropriate, but not necessarily money-saving. You may be able to sell your house and buy something cheaper, but it might also make sense to downsize to move closer to family or have less house to clean.

It’s important to be clear on what you want. “Goals are so crucial,” says Juan HernandezAriano, a certified financial planner in Houston. “There are multiple pathways people can take.”

Here are some situations that may match up with a “For Sale” sign.

YOU’RE IN A CASH FLOW BIND

In retirement, you might find that rising prices combined with a fixed income make you feel a little squeezed.

HernandezAriano notes that his clients in southeast Texas are bothered by high home insurance premiums due to severe weather events, plus high property taxes. “A lot of insurance companies are dropping coverage on the southeast side of Texas,” he says.

If downsizing is a question of money, consider all your housing costs. Weigh the mortgage, property taxes and insurance, plus basic bills like electricity and water services for your current and future homes.

One client in Houston did the math and moved 90 minutes away, where they got a cheaper home and dropped their homeowners insurance by 60%. “Property taxes also went down since they weren’t in a highly competitive school district,” HernandezAriano says. “They still spent more on gas and water and had to pay for relocation expenses, but overall, they saved monthly.”

YOU’RE IN A PRICEY AREA

If you live in an expensive city, you have a better chance of selling your home and finding something cheaper. “When you’re in a lower-cost area, it’s going to be difficult to find something even (more) lower cost,” says David Demming, a CFP in Aurora, Ohio.

Just do some looking before you leap. Inventory is low in many places, and competition is steep for a smaller home with upgrades.

To save money overall, the value of the home you’re purchasing should be at least 20% less than the house that you’re selling, says Diane Pearson, a CFP in Wexford, Pennsylvania.

YOU CAN’T LIVE THERE SAFELY ANYMORE

Your health may require you to find a new home with fewer stairs, a first-floor primary bedroom or an accessible bathroom.

Michael Maye, a CFP in Gillette, New Jersey, notes that his clients who’ve seen parents go through long-term care or health issues are more likely to consider future mobility when planning their retirement. “Recently, I proactively worked with a couple and they knew that they didn’t want to age in place, because they have a bigger house,” he says.

They wanted to buy into a continuing care retirement community, where they could take advantage of graduated levels of care as they needed it. “They could stay in their house, but they don’t plan to,” Maye says.

YOU WANT TO BE CLOSER TO FAMILY

While being closer to children or aging parents is a good reason to downsize, don’t count on this being the cheaper option, especially if you’re moving into a hotter market.

Consider one of Demming’s clients, who moved from one part of Ohio to another part of the state. “It cost her $150,000 more to move there, to get a house that was acceptable to her,” Demming said.

Even with the higher cost, Demming says, it was worth it to be closer to her children and grandchildren — and her new city is booming. “There is no looking back,” Demming says. “Her new home has appreciated quite a bit since moving.”

YOU’RE PREPARED TO CREATE A NEW SUPPORT NETWORK

If downsizing means a new city, keep in mind that you may have to rebuild your community. Even if you’re moving to be near family, you shouldn’t count on them to be your activities hub. “Are you a social person who’s going to be able to get out and about and make your own way?” Maye says.

You’ll need to make new friends, find new medical professionals, find a new gym. “Those are the trade-offs,” Maye says. “None of them are deal breakers, but I think people should really think about all these other things.”

This article was provided to The Associated Press by the personal finance website NerdWallet. Kate Ashford is a writer at NerdWallet. Email: kashford@nerdwallet.com. Twitter: @kateashford.

You just retired (or are about to). Now what?

If there’s one group likely to be experiencing the most consternation over inflation and economic uncertainty, it’s those who have just retired or are about to. To make it through this period with their sanity intact, they should focus on what they can control.

People who have just retired or are about to are particularly vulnerable to sequence-of-returns risk, which means that a bad market shows up early in your retirement. Not only does that early retirement sell-off feel bad, it actually is bad because it imperils your portfolio’s ability to last throughout your retirement years. In  Morningstar’s 2025 retirement spending research, we found that the people most likely to run out of money in retirement were  the ones whose portfolios lost value in the first five years of their retirements.

Retirees who are pulling cash flows from their portfolios can address that risk by adjusting their spending down to ensure that more of their portfolios are in place to recover when the market eventually does. And those adjustments don’t need to be radical to make an impact. In  our retirement income research, we found that even small tweaks like forgoing an inflation adjustment following a bear market help ensure that spending lasts over a whole 30-year period and can lead to more lifetime income than a strategy that ignores market movements.

If you haven’t yet retired, assess your planned in-retirement spending and identify where you would be willing to make cutbacks. Turbocharge savings if you can afford to do so. Catch-up contributions are available to all retirement savers over age 50. And if you’re between 60 and 63, you can make a “super-catch-up” contribution to your company retirement plan, for a total of $35,750 in 2026. High-income heavy savers may also be able to take advantage of after-tax 401(k) contributions, which enable them to stash even greater amounts in their company retirement plans.

In a turbulent market environment in which equities have declined, it’s best to pull any portfolio cash flows from safer assets and leave your stock positions undisturbed. That’s the general logic behind  the Bucket approach to portfolio construction. In good years for the stock market, like 2023-25, you’d be harvesting appreciated equity assets to supply your income needs. In bad ones, like 2022, you’re not touching stocks but instead sourcing cash flows from high-quality bonds, cash, or a combination of the two.

If your portfolio is riskier than it should be, it’s not too late to shift into a more situation-appropriate asset allocation.

Social Security is a secure, inflation-protected source of income, much like a paycheck. But the lifetime benefits of delaying Social Security are hard to ignore: a higher income stream that also happens to be fully inflation-protected and will last as long as you do. Delayed filing can be particularly impactful if you’re the higher earner in your family and you have a younger spouse who will receive that higher benefit for their lifetime.

In  our retirement income research, we found that delaying filing up until age 70 did enlarge lifetime income, but the benefits are greatest if you have some other source of funds to draw from until your benefits start. And the benefits are also obviously more valuable for people with above-average life expectancies, in that they stand to receive those higher streams of inflation-protected income for a longer period of time.

Inflation is a key risk for retiree portfolios because the income from your safe investments is going to buy you less and less as you age. Moreover, retirees tend to spend more on healthcare, where prices have historically increased faster than the general inflation rate.

Many retirees focus on nominal bonds and underrate the value of inflation-protected bonds as a component of their retirement plans. You can address that by adding an inflation-protected bond fund to your portfolio; most of the better target-date series allocate roughly one-fourth of their bond portfolios to inflation-protected bonds. Alternatively, you could build a laddered portfolio of Treasury Inflation-Protected Securities that will mature and supply you with living expenses throughout your retirement.

The early retirement years are typically an excellent time to consider strategies like converting traditional IRA balances to Roth or accelerating withdrawals on traditional IRAs and 401(k)s. Without income from work and because you won’t be subject to required minimum distributions until you’re 73, your income, and in turn the taxes you’ll owe on those conversions and withdrawals, will be lower.

This article was provided to The Associated Press by Morningstar. For more retirement content, go to https://www.morningstar.com/retirement.

Christine Benz is director of personal finance and retirement planning for Morningstar and co-host of The Long View podcast. Subscribe to her free newsletter, Improving Your Finances.