The Surprising Joys of Downsizing in Retirement

For many of my thriving retiree clients, the days of making that monthly mortgage payment are long past. The home is paid for, and the money that used to go toward knocking out the principal and interest on a home loan is now going toward other purposes. After all, owning a home free and clear is a major goal for most.

On the other hand, there are several real advantages to downsizing in retirement—maybe even renting instead of owning. While most of us properly associate home ownership with security and stability, other factors can make renting—or purchasing a significantly smaller home—a smart move for retirees.

First, for many retirees, there’s the obvious challenge of upkeep, maintenance, insurance, and taxes. Even when the mortgage is paid, these expenses continue and can sometimes take up a larger and larger slice of the budget. Additionally, for some retirees, the large, three- or four-bedroom home with a big yard that was such a joy when the kids were growing up may be a little more difficult to manage, now that the kids are gone and the owners are not as young as they once were. In fact, accessibility—like climbing up and down stairs—may provide a reason that a smaller place, or even a single-floor apartment, is a better choice for the retirement years.

In contrast with the security and stability of home ownership, renting can offer a greater degree of flexibility. For retirees who don’t enjoy driving as much as they used to, occupying an apartment located in close proximity to shopping, restaurants, museums, and other amenities may provide a more fulfilling and less stressful alternative to time spent on roads and streets. Also, when you’re a renter, expenses like upkeep, property taxes, and insurance are the landlord’s problem—not yours. That alone can alleviate a lot of stress and uncertainty for persons living on pensions, Social Security, and investment income. In fact, when you consider all these factors, renting can sometimes create additional liquidity for persons in retirement.

Finally, and especially if you live in an active real estate market, those years of equity and increasing property values can equal some pretty impressive improvement in your balance of funds available to provide retirement income. Naturally, you’ll want to carefully consider the tax implications of selling the home and investing the proceeds, but it’s worth thinking about, especially if the appreciation in your home represents a majority of your net worth. While a home should not be considered primarily for its investment value, it can nevertheless offer a tremendous amount of security in the event that you decide it is in your best interest to access that value for funding your retirement.

I work with thriving retirees and those who are preparing for retirement to design smart, individualized strategies that can help to provide for a secure, satisfying retirement lifestyle. Most critically, I am a fiduciary, which means that I am legally and ethically obligated to provide advice and recommendations that place my clients’ best interests before everything else. Click here to download my report, “The Fiduciary Standard and the Individual Investor,” to learn why it is critical to have a trusted advisor guiding your retirement strategy for 2021.


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