Q: I always thought that when we bought our ideal home, we’d live in it until we died. It seems to me that most people will eventually get their home paid off so they can live in it mortgage-free when they retire. My husband and I both work full-time and really appreciate our home.
But lately, I’ve heard some of the financial experts on television talking about down-sizing your home. I can’t believe I’d ever consider it. But ever since the bottom fell out of the economy, I’m starting to wonder about all the costs involved — should my husband and I think about selling our house?
Does giving up the home of your dreams and down-sizing ever make sense?
A: You pose a good question. Many people believe the same as you: that they’ll remain all their lives in the first home they buy. However, we know that usually isn’t the case thanks to statistics on the subject. The average adult moves nearly 12 times in his life, according to the research.
Usually, each time people move, they “move up” to homes that are bigger and cost more to buy and therefore to maintain. They end up with ‘more house’ than they can realistically afford, and become more and more trapped by an asset that is not liquid, that is, can’t be easily converted to cash in case of an emergency.
The reality is that it costs money to keep a home in good working order. Some situations in life could occur that would compel you to reduce your standard of living. for example, if you or your spouse got laid off, or became ill and could not work, it would require you to live on just one of your salaries.
The question then becomes whether or not that would be possible. We should all have an emergency fund set by, but what if the unemployment or illness lasted longer than the six months you are supposed to plan for?
Another reason to down-size has to do with how much money you save over the long term. If you turn 65 and your retirement savings haven’t reached an amount you can live on for 25+ years, it makes sense to reduce your expenses by down-sizing. That will most likely involve selling the home you live in to get a smaller one and to live more modestly within your means.
Imagine that you live in a 2,500 square foot home at age 65. If the children have moved out, you could reduce your monthly expenses by a large percentage if you moved to a 1,200 square foot condo. That is because you’d be paying for heating, cooling and upkeep on just ½ the square footage that you did before, plus, no lawn care expenses would be needed.
Many families used to keep the home as is in case the children wanted to visit or come back to live, but you could look for a two-bedroom to use as a guest room and home office and consider putting in a sofa bed there and in your living room if you are really concerned about this.
Another factor that could trigger down-sizing is one of you leaving the workforce early. Consider this — if you or your husband develops a chronic health condition that prevents you from working, you would be living on one paycheck or on a significantly lower Social Security income rather than the amount on your paycheck. Another situation that might cause one of you to resign your job earlier than you anticipate is the need to take care of an aging parent. Many people are living longer than ever before, but this can often mean becoming crunched between young children on the one hand and aging parents on the other.
If your house is set up in such a way that an older person such as your parent or your aging self can live in it without issues regarding stairs and maintaining independence, you might consider keeping your house and having your family move in to save expenses.
Some people also rent out their rooms after their children leave, to earn extra money and have more company, but this can be risky if you do not know the person well, or at all.
It is less expensive to run a smaller home. You’ll begin noticing savings right away. The smaller your yard is, the less you pay to mow it or have it taken care of. The smaller your roof is, the fewer dollars you will spend maintaining it and the less you will spend on heat and air conditioning.
While it is true that the property market is not doing too well at the moment, you can never plan too early for the future, particularly your retirement. Start thinking about your opportunities now and plan for your financial future carefully. The next home you buy may be perfect for you, and one you will want to live in long term. Take account of what you would need now and in the future and think about a one-storey or easy access house in case of illness or disability.