Making the decision to downsize your home

Buying and selling are always major life changes. Here’s what to consider before scaling down in retirement.

Once your children have left the nest and you’re retired or nearing retirement, you may be considering downsizing your primary home. Perhaps that multi-story, four-bedroom house feels too big and empty for two people, and you don’t want to pay to heat, cool and otherwise maintain rooms you don’t use. Or maybe you’re tired of the upkeep of a large yard and property.

After many years of ownership, you may be able to sell your home at a considerable profit. Still, it’s not a simple decision, financially or emotionally—it’s very normal to have mixed feelings about leaving a home and community you’ve enjoyed for decades.

When weighing the pros and cons of sizing down, here are some things to take into consideration.

"The average home size has increased dramatically over the years, which may make it harder to downsize if you’re looking for a smaller single-family home."

Downsizing in today’s market

You may be anticipating a big profit when you sell—especially given the recent hot housing market in much of the country. The pandemic-fueled desire for more space, coupled with millennials entering their prime home-buying years, means many homes have been selling quickly and prices have been up. That could bring a windfall, and since the IRS allows married couples to exempt up to $500,000 in home-sale profit from taxes (provided they’ve lived in the home for at least two of the last five years), you’ll likely enjoy much of it tax-free.

The flip side, of course, is that you will need a new home, and purchasing one might off-set your profit more than you expect.

"The average home size has increased dramatically over the years, which may make it harder to downsize if you’re looking for a smaller single-family home,” said TIAA Financial Planning Strategist Rob Stevens. And, he explains, by downsizing, you’re potentially competing against those very millennial families looking to buy their starter homes.

Since real estate conditions vary from market to market, be sure to research prices and demand carefully before shopping in a new area, Stevens says. And then be ready to go. When demand is strong, you likely will have to move quickly when you find a house you want. That includes lining up your mortgage pre-approval if you’ll be borrowing for the purchase.

Deciding where you want to live

If you’re contemplating moving out of your current town, or to a new region of the country, here are some things to keep in mind.

First, consider your planned lifestyle. If you want to travel frequently, seek out a location near an airport or with easy access to highways. Want the slower pace of a rural area? That may bring a tradeoff in access to cultural activities and medical care. Take the time to research these details—including, if you have a specific healthcare concern, the drive time to the closest hospital and available specialists.

Also, think of how the location will impact your needs. For example, if you are moving to a destination area and expect to host holidays and guests frequently, you might be tempted by a home with a spacious kitchen and perhaps guest bedrooms. But if your goal is to avoid another large house, remember that nearby home shares and rentals can also accommodate family and guests.

Finally, remember that just because you sell your home, it doesn’t mean you have to immediately buy another, especially if you’re relocating. Consider selling and then renting in the new area for a while before buying, which is a harder decision to undo if you decide the location isn’t for you.

“Things can change, so stay flexible,” says Shelly Eweka, Senior Director, Financial Planning Strategy at TIAA. “Until you retire, you don’t really know what your retirement is going to be like, which means you may change your mind about where to live.’’

Considering what type of home to buy

For those who take great pleasure in working in the yard and garden, it’s important to maintain some outdoor space. On the other hand, if you’re ready to ditch mowing the lawn or shoveling snow, a condominium or townhouse might be ideal. The tradeoff comes with costs, in the form of monthly maintenance fees. Also, many developments levy assessments for shared amenities. If you don’t swim or play tennis, you may be better off in a community without those features, says Stevens. Beyond fees, many multi-unit developments enforce rules on everything from selling your property to what type of light fixtures you can install outside your home. Be sure you are comfortable with following such policies before you move in.

Thinking about staying put

When mulling the logistics of selling, buying in a competitive market, moving and getting established in a new home, it can be tempting to just stay where you are. And certainly, there are advantages to doing so. You’ve likely invested time and effort over the years to turn that house into a loving home—one that you truly enjoy spending time in and that your family loves to return to for visits. And the existing relationships you’ve forged in your area shouldn’t be underestimated: Friends, nearby family and service providers, such as doctors and repairmen, hold great value asyou look to stay connected to others in retirement.

Ultimately, the decision to downsize is highly personal and should be made by taking into account many factors, including the lifestyle you want, the type of home you like best and your financial situation in retirement. Your TIAA financial advisor can help you walk through all the considerations to help you reach the best decision for you.

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This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.