11 Costly Mistakes Retirees Make When Downsizing

NEWS & TRENDING - RETIREMENT NEWS
Save yourself money and stress by avoiding these downsizing mistakes when you retire.
Updated May 8, 2024
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Downsizing can be a good way to make extra money out of your home when you retire while saving yourself 

After all, you may not need the extra space now that you’re retired and an empty nester. You also might not need to be in a specific location once you ditch your job and its long commute.

But there could be some downsides to downsizing. Make sure you consider these factors before you move to a smaller place.

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You’re overestimating your current home’s value

Andy Dean/Adobe sold real estate sign

It can be easy to see the estimated cost of your home on a real estate website and think that’s what your home is worth. You may also think that a home that recently sold in your neighborhood is a good comparable for your house.

Before thinking it will help you get ahead financially, you need to make sure you know the actual value of your home. You could be hurting yourself if you overestimate how much you can get out of your home to invest in your next purchase.

You’re underestimating the cost of your next home

Studio Romantic/Adobe female real estate agent gives key

You’re probably ready to move somewhere else and can’t wait to find a new place. Maybe you’re relocating to a warmer climate and your downsized home is on the beach, or you’ll be closer to family.

It can be an exciting change, but make sure you go into it with a clear idea of how much it will cost you to buy a home in the new location. 

You don’t want to sell your home and take that lump of cash somewhere else only to be confronted with sticker shock.

You haven’t considered tax issues

Syda Productions/Adobe stressed senior woman filling tax form

There can be tax implications on both ends of downsizing so make sure you’re prepared so you don’t make a costly mistake.

Factor in paying taxes on any profits you could make by selling your home as well as property taxes with the new house you’re buying. 

These costs could add up and potentially sink your downsizing plan. On the positive, you may be able to exclude up to $250,000 in capital gains from the sale of your home (up to $500,000 if you file jointly).

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You’re living beyond your means

fizkes/Adobe senior couple got scammed online

Yes, you can still live beyond your means even after you downsize so it’s important to consider all costs.

Remember that you’ll be on a fixed income when you retire so it might not be as easy to get additional cash to cover surprise expenses.

Create an estimated budget to get a clear picture of how much you can afford when you’re on a fixed income including home costs. You may even want to make a few moves to boost your bank account.

You aren’t considering long-term issues

okrasiuk/Adobe Senior woman using automatic stair lift on a staircase at her home

You may have found the most amazing townhouse in the perfect location with three floors of living spaces and bedrooms with less square footage to clean and care for.

But what happens when you get older and have to climb three sets of stairs to enjoy your home?

Think about the short-term enjoyment of your home as well as the long-term issues when deciding what kind of home you want when you downsize.

You’re forgetting about closing costs

Andrii Zastrozhnov/Adobe senior woman sits on a bench

It can be easy to forget about closing costs whether you’re a homebuyer getting your first place or if you’ve closed on half a dozen homes.

Factor in the down payment for your new home as well as attorney fees, appraisal costs, and property taxes among other fees at closing. 

Forgetting these could cause you to end up with less than you estimated by downsizing.

You haven’t considered your possessions

Halfpoint/Adobe senior woman cleaning and renovating garden furniture

Downsizing sounds like a good idea when you retire as you don’t need as much space and don’t want to care for extra square footage.

But what about your furniture or things you’ve been saving in storage?

You’ll have to get rid of some items and it may be better to downsize your possessions before you put your home on the market. That extra stuff could clutter up your downsized space and make it harder to enjoy your new home.

You ignore the possibility of different sounds to adjust to

Andrii Iemelianenko/Adobe man sitting in couch at home covering his ears with cushions at home

There are things you may have considered when you looked for a new home, but there are also things you might not have realized until you moved in.

Remember that you’re going to have to adjust to new sounds like more traffic if you move to a bigger city. No sounds can also be disconcerting if you decide to live in an area that’s farther away from shops and road traffic.

You don’t consider unfavorable traffic patterns

deagreez/Adobe exhausted and depressed grey-haired man driving car in traffic jam touching nose feeling bad.

You may have found the perfect home and have enjoyed unpacking all summer. Then you realize it takes you extra time to get anywhere around your neighborhood during school hours with a high school nearby.

You may want to review neighborhoods at different times before you buy your home so you can figure out the more nuanced issues you may have to worry about if you decide to live there. 

It can give you a better idea of what to expect after you move in and perhaps make you choose a different area.

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You don’t like your new neighbors

stephm2506/Adobe senior woman shouting over a wooden gate outdoors

You’re inevitably taking a chance any time you move with what kind of neighbors you’ll have. It can be tough to move into your dream home and realize you don’t like the people who live around you.

Unfortunately, this is just one of the drawbacks of living somewhere so it’s important to find a way to adjust to your new living situation when you downsize.

You’re too sentimental

StockPhotoPro/Adobe sad old woman mourning the loss of her husband

It’s not a bad thing to be sentimental about your home, but it’s important to find a way that won’t let it interfere with your downsizing process.

Being too sentimental could mean you hold onto your home for too long and lose money by not selling it at the right time. You also could end up overpricing your home because you love it too much to appreciate what you can get for it on the market.

It might be a good idea to talk to others and get their feedback so you have a clearer picture of your living situation without sentimentality sneaking in.

Bottom line

peopleimages.com/Adobe senior woman having headache holding head

Downsizing can be an important move when you retire, but you’ll need to have a clear head to make sure you don’t lose money in the process.

Consider talking to a financial advisor to help you navigate financial issues such as how much you can afford to spend on a home with a fixed income so you don’t end up struggling financially.

You also may want to figure out exactly how much you might spend when you downsize. You may discover you can afford more home than you think or perhaps even retire early.

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Author Details

Jenny Cohen Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.

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