DOWNSIZING FOR FINANCIAL REASONS

Feb 21st, 2013 | By Sharon Shaw Elrod MSW EdD | Category: Senior Finances

Problems With Retirement Income

Fixed incomes in retirement can be a serious challenge for retirees to manage. Most of us were used to our income fluctuating, generally increasing annually on our hiring anniversary date. If you stayed with the same company/agency/employer, you may also have been the beneficiary of an annual bonus, cost of living increases and other monetary rewards for good work.

Many seniors find their retirement income not stretching far enough. If your expenses are exceeding your income, you would probably do well to consider downsizing. Downsizing can mean different things to different people. Most Internet articles agree that the biggest obstacle to downsizing is having an emotional attachment to property, both personal and homestead/land. Steve Santiago writes, “‘Most retirees have an emotional attachment to their house and most want space for their kids to visit,” says Stephen Horan, a Chartered Financial Analyst and head of private wealth and investor education at the CFA Institute in Charlottesville, Va. “‘But if you can downsize and free up capital to reinvest into your retirement portfolio, that can be a very sensible thing to do.’” (Thirdage.com) The problem is that being sensible sometimes conflicts with emotions.

Benefits of Downsizing

Dealing just with what is sensible (as opposed to emotional ‘druthers’), there are several ways to downsize and create financial benefit.

  • If you live in a home that is bigger than you need and more space than you use on a regular basis, consider selling and finding a smaller more useful domicile. Bigger generally brings more money, and you may have some left over to invest after purchasing a smaller home. You may also be able to plan well enough to avoid a mortgage.
  • Downsizing your home also means related costs are less, such as lower utilities, lower taxes, less insurance, less maintenance and upkeep. If you have a mortgage, the total remaining should be less if you downsize.
  • If you live on or own property of several acres, consider selling it; you may even be able to sell it in smaller units, thus creating more income for you to invest. (NOTE: Several years ago, some friends sold a few acres of land in East Texas; then three years later, they sold some more acres; they finally sold their home and remaining acreage just last year, thus selling all of the land in three separate transactions.  The process worked well for them, and they realized more revenue from three separate contracts than they likely would have for one big one.)
  • Consider checking out retirement communities that include meals with the unit that you may either purchase or rent. There are different plans in retirement communities, and you need to look carefully at the kind(s) of plan that works best for you.

The most important factor in planning for downsizing is to ensure the new domicile is less costly than your current one. That means looking realistically at costs in each location and making an analytical comparison. You may need help from a trusted financial adviser or family/friend who can help you think through the information.



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