If you're nearing retirement, hopefully you're getting close to having paid off your home. What an amazing accomplishment! You're a big step closer to being completely debt free. You may have considered tapping into the equity of your home to help you pay for retirement expenses. That thought may not have been part of your original plan. You may have realized you're coming up short on your retirement funding and thought a reverse mortgage was sounding like a great idea. Before you make a move in any direction though, let's take a look at what is largely considered to be the most conservative option; downsizing into a smaller home.
Just the thought of leaving your home can bring up a lot of feelings. Men are usually more open to the idea than women, who place a large emotional value on the memories of the home they've raised a family in.
- Median Condo Cost 2013 - $222
- Median Condo Size - 982 square feet
- HOA national average - $2000 per year
Now compare these numbers with
- Median Single Family Home Cost 2013 - $125
- Median Single Family Home Size 2013 - 2,690 square feet
- HOA - $2000 per year
Insurance and property taxes should decrease as they are tied to the value of the residence. Since you're selling, you'll also need to take into consideration the transaction costs for realtor's fees, escrow fees, title insurance, repairs to prepare the property for sale, home buyer credits for inspection items, interim housing costs, tax loss on improvements made in the last five years.
On the surface, downsizing looks like a great idea, but when you move into a condo from a single family home, you're not getting the same value. A condo that's half the size of your home could easily end up costing you the same amount. Consider too that while condos may have less maintenance, they can also be more difficult to sell than a single family home which could create a problem for your heirs if they need to liquidate the property when you're gone.
Moving to an area with a lower cost of living could prove to be a very lucrative maneuver. New Yorkers retiring in Florida and Californians sunsetting in Colorado often find that they can purchase property for as little as a third the cost per square foot of what they paid in their native states. This scenario often produces results that have the biggest positive impact on your retirement nest egg, but with the downside of leaving behind friends, family, and the life you've always known.
Before you act, know what the total costs could be and weigh the value against your current property. Take into consideration the emotional tax of leaving your family home and the impact your choice may have on beneficiaries.