There are all kinds of “rules for retirement” out there, but who’s setting them and why should you feel like you must follow them? A common piece of advice given to people on the verge of retirement is to downsize your home. While it’s true that this move can reduce your cost of living in several ways, that’s not the only factor to take into consideration. Here are some of the pros and cons of downsizing for retirement that you can use to inform your decision.

Pros of Downsizing for Retirement

Costs May Be Cut

• First, your utility bills might go down simply because there will be less space to heat and cool. You may even see your water bill lower if you move to a home with a smaller lawn.
• Your home insurance could also become more affordable since the size of your house affects premiums.
• Plus, bigger homes generally need more maintenance because there is more to keep up with. Again, moving to a property with less outdoor space might increase savings as you’ll eliminate the need for extensive lawn and garden care.
• Property taxes are an additional item to consider because square footage is a factor in assessing a home's value for tax purposes.
• Finally, if you move into a condo complex or senior living community that has amenities you pay for elsewhere – like a gym, pool, or club – you will be able to cut membership fees and use the facilities already included in your housing costs instead.

Money Could Be Made

• If you can sell your current home at a good price, then you might walk away with extra money in the bank.
• You could also be exempt from paying capital gains taxes on the sale of your current house – the first $250,000 if you file taxes as a single taxpayer or $500,000 if you’re married and file jointly, that is. However, there are some restrictions so be sure to educate yourself on the details.
• Another way you can make a profit during downsizing is by selling possessions that you will not need or that will not fit in your new home.

Life in Retirement Might Get Easier 

• Maybe it’s still easy for you to get around your current home, but that won’t always necessarily be the case. Moving to a one-level house or senior living community may continue to provide more and more benefits as you age. Removing the need to clean such a large home alone can be a weight off your shoulders.

Cons of Downsizing in Retirement 

New Costs May Be Incurred  

• To start, simple costs like hiring movers can add up.
• Perhaps most significantly, the transaction costs associated with selling and buying houses are no joke. A HomeLight study found the average cost to sell a house is $31,308. This is usually a combination of renovation expenses, the real estate agents’ commission, and closing fees and taxes, which are generally between 2% to 5% of the home's purchase price.
• Although it’s not usually the case when selling a larger house and buying a smaller one, you may end up with a new and/or higher mortgage. With an existing mortgage likely at between 2% and 3% (unless someone dozed off and never got around to refinancing into the low rates we enjoyed for quite some time), a new mortgage will run somewhere around 7%.  So, even if you lower your mortgage balance, your payments may not change - or, could even increase.
• If you still have a mortgage, your existing rate is likely between 2% and 3% because rates in general were enjoyably low for quite some time. Unfortunately, a new mortgage will run somewhere around 7%. Traditionally, selling a larger house and buying a smaller one lowered monthly payments. But with today's rates, even if cut down your mortgage balance, your payments may not change and could even increase. 
• You'll likely want to get new appliances, furniture, and decorations to better fit your smaller space and this will also cost you.
• Because you’ll have less room, you might not be able to fit all your sentimental belongings in your new home, which means you’ll need to pay for a storage unit.
• Particularly if you’re moving to a condo complex or senior living facility, you might take on new expenses like homeowners association (HOA) fees.

There Will Be Less Space

• It will likely take some time to adjust to living in tighter quarters. This means some, hopefully temporary, discomfort is essentially unavoidable.
• If you entertain a lot, especially if you love to host multiple children and grandchildren at once, continuing this tradition may not be realistic once you move to a smaller home.
• Similarly, if you have a hobby that requires dedicated space, this could be hard to come by after downsizing. Maybe you even do some work from home still and need an office. These extra rooms are typically things given up during the downsizing process.
• Also, another common use that extra rooms in larger homes accommodate is housing renters. Whether you have rented or were considering renting rooms to either make some money on the side or to provide affordable living to younger generations, you probably won’t be able to do this in a smaller house.

The Family Home Will Belong to Someone Else

• The best-case scenario for downsizers with sentimental attachments to their homes is passing the house to other family members. It can be understandably hard to have your access to a place filled with so many memories entirely revoked. However, even if the house stays in the family, you’ll still be faced with challenges like no longer having the final say over renovations and decor. The other difficult piece, depending on where you’re moving to, is that you might be leaving behind a neighborhood that you really love that’s inhabited by old friends. 

There are so many factors that go into moving in general that each situation is entirely unique. Therefore, there is no one-size-fits-all answer for whether you should downsize in retirement or not. The best thing you can do is take the time to balance all these pros and cons in relation to your own life. A financial advisor can help you begin this process by explaining how various options will impact your overall retirement strategy. 

Of course, money isn’t the only piece of this equation. Sometimes, the love you have for your home is a stronger argument than all the rest. If you can keep your house and still be in good financial standing, don’t feel like you’re doing something wrong. The truth is that there are no hard and fast rules for retirement. You’re allowed to continue living your life the way you want, so go out there and do it!