Does Downsizing Add Up?
It's a common bit of retirement advice: Downsize your housing after the kids leave the nest to cut costs. Interestingly, though, many baby boomers have no intentions of downsizing. Nearly two-thirds of boomers surveyed in 2013 by The Demand Institute -- a nonprofit owned by Nielsen -- plan to "age in place" rather than move. Of those who do plan to move, nearly half said they plan to increase the size of their home or pay more for a comparably sized home.
Many people assume that downsizing housing saves money. But does it really?
It can, especially if you're able to cash in on the equity you've built up. But there are a lot of factors that can actually result in higher housing costs once you downsize.
"What we always recommend is to consult with a financial planner to see what your monthly expenses are now and what the expenses may be where you're thinking of moving," says Jeff Stone, a seniors real estate specialist in a Port Washington, New York.
Stone points out that the term downsizing can be, well, a bit of downer.
"Rightsizing, to me, is a better word," he says.
Here's a look at several areas to consider before moving later in life.
When you move for a job, you might get a relocation package from your employer or load the moving truck with help from a couple of able-bodied friends. But when you move during retirement, you bear those costs, which can be considerable if you're moving a long distance and need to hire professional movers.
"Sometimes with the cost of moving furniture, especially if you're going a longer distance, it can be more feasible to buy new furniture," says Mario Minotti, a partner at Minotti Group Wealth Advisors in Chicago. (Minotti's clients are mainly retirees and pre-retirees, so he has talked through the pros and cons of downsizing with several of them.)
Beyond the cost of physically transporting your belongings, you'll also pay transaction costs on selling an existing home and buying a new one.
"If [a home is] listed with a broker, you pay their commission and will also be paying your attorney fees, closing costs and so forth," Stone says. Many boomers also choose to rent, which comes with a different set of costs.
Many boomers have amassed -- and grown attached to -- large collections of antiques and other mementos over the course of their lives.
"There's china sets, a lot of antiques and family things that they want to preserve," Minotti says. "A lot of male clients have accumulated a couple of cars, and they're excited that they're going to be able to enjoy them [in retirement], but parking spots can be expensive."
Or, in some cases, "their kids had a bunch of their childhood stuff that they want to preserve for their grandkids," he adds.
One option, if you don't have space for these items, is renting a storage unit. But it doesn't come cheap, especially if you want secure, climate-controlled storage for antiques. The average asking rent for a 10-by-10-foot, climate-controlled storage unit in the U.S. was $151 per month during the fourth quarter last year, according to the Self Storage Association.
Another option is to sell, donate or give to relatives. Unless you have items that are in demand, don't count on making big bucks or getting younger relatives excited about decades-old furniture (a notable exception being college-bound or recently graduated grandchildren furnishing a place on a budget).
An item may provide "a memory but doesn't provide value to someone else," says Chris Abts, president and founder of Cornerstone Retirement Group in Reno, Nevada. "We find many times those just don't have much in the way of value."
Many boomers also lack the energy or discipline for a serious declutter, which has spawned an entire of industry of senior move managers and organizers for hire. "The key would be to downsize the things you've accumulated while you have energy, while you're healthy," Abts says.