Financial Insights for Downsizing
Updated: Oct 23, 2022
Deciding if downsizing is for you is not easy. There are several facets that should be taken into consideration. From the maintenance needed on your home to your medical care, understanding your needs & future plans are the first step in deciding if you’re ready to downsize. Like any large changes you are looking to make in your life, it is important to understand your why. What are the present factors that have led you to think about moving? Are you looking to be closer to family and friends? Has your current property become too much in terms of maintenance or monetarily? These are questions that have been shown as the top two reasons individuals in retirement are considering moving. We cover this in more detail in our blog Am I Ready to Down-Size? In this article however, we provide insights on the financial aspects of downsizing.
Benefits of Downsizing
Along with the obvious reason of being closer to family, there are several other factors that downsizing is able to offer. The first is a driving force that is behind many decisions - money. By trading in for a smaller model home, you are looking at being able to attain a lower mortgage which in turn allows you to free up some of your cash flow. Another reason is money’s partner in crime- time. Having a smaller property provides the time that you are not spending either cleaning or any other weekly, monthly, and yearly maintenance you are performing on your home. Another benefit of downsizing is you’ll typically have a lower utility bill! Now let’s talk about your belongings. We may not realize it, but when we are given a space, we tend to fill it fairly close to its capacity. Downsizing gives you the opportunity to do a deep dive into the things you have and to decide if they will be traveling with you to your new home.
Downsides to Downsizing
Aside from the fact that you are trying to fathom having to pack up your entire home and move for the umpteenth time, there are a few aspects to think through. Just like the benefits, we are again looking at the mortgage. No matter how long you have lived in your current home, you are looking at starting over on a mortgage. Now, this pill may be hard to swallow depending on the amount you have left on your mortgage. This point may be most predominant to those lucky few that have their home paid off and are just paying property tax. Along with a new mortgage, one need not forget the dreaded HOA. While there are homes and neighborhoods that do not have HOA’s, it is rather common to come across ones that are additional several hundred dollars a month. Tying into the area and HOA you will also be battling home availability- which may lead to more deterrents than the previously mentioned reasons.
Costs of Selling your current Home
While in the past you have had your focus on the timeframe of selling your home and the price, now you must remember to keep the taxes in mind. Since you are now downsizing or moving into an assisted living, there is capital gains tax to think about. It is imperative to do your research and understand how much you are able to profit from the sale and still be excluded from capital gain taxes based on the time in which you bought your home and if you file single or joint taxes. If you are not excluded, you are looking at a 15 to 20 percent tax rate.
Another vital aspect of selling your home is understanding how it will affect your government benefits. Having such a huge increase in income- even if it is one time- can disqualify you for Medicaid or any disability coverage you may receive.
Moving and Storage Costs
Are you moving locally or cross-country? This is an important question when determining the prices you are looking at. Keeping the move local, you can expect to spend around $900 while moving to a different state or even across the country can leave you spending closer to $10,000 when all is said and done. Additionally, you may have to purchase new furniture or appliances if they are too difficult to move or if they are due to be replaced.
Contact Grimm Realty Group for Senior Care Insights
While deciding to downsize for retirement sounds exciting, with so many possibilities; it is always good to understand the repercussions that may take place and if you are able to get past them. Some may not be able to afford it because upfront costs are too large or the benefits they would need to give up. When choosing a Senior Living option, take the time to speak with your doctors & financial advisor to see which is right for you or your loved ones. Each of these options comes with a variety of benefits & costs and we are happy to answer any questions you may have involving your housing needs. With the high costs of healthcare & retirement needs, planning your Senior Care options in advance can help to ease the burden when the time comes. Visit our other Senior Living blogs for more information!
Are you or a loved one considering your options for retirement or downsizing?
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Additional Sources for Paying for Senior Care:
Paying for Senior Care: Assisted Living Facilities - An Overview
Paying for Senior Care: Minnesota Assisted Living & Home Care: Costs & Financial Assistance
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