Downsizing might not be such an economical resource for seniors to increase retirement savings.
While the assumption of downsizing is thought to reduce overall living costs, a report from Go Banking Rates (GBR) encourages prospective retirees to first do the math, because they could end up paying more.
On the surface, empty nesters and retirees can count the potential savings from downsizing. A smaller home is usually a less expensive home as fewer square footage offers less utility costs, which GBR suggests also costs less to maintain than larger homes.
But while the benefits seem good in theory, in practice there are a variety of expenses many do not consider when purchasing a new home.
A home hit hard by the housing market crisis could be worth significantly less than when it was purchased. Although homeowners can sell and use the proceeds toward a less expensive home, the savings are offset by the loss on the home’s original purchase price.
Realtor fees to find a new home and sell the original also cuts into expenses, as well as closing costs and fees downsizers must pay in securing new mortgage terms for newer residences.
To avoid expenses such as these from tearing into savings, the study suggests renting as a viable, more cost-effective avenue for retirees and empty nesters looking to move.
After factoring in costs associated with insurance, repairs, mortgage payments and taxes, renting appears much less costly in the desire to downsize than buying a smaller home.
Rather than playing into assumptions, the study urges seniors to look at all the expenses attached to moving and purchasing a smaller, more cost-effective home.
Written by Jason Oliva