Living in Retirement

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Thinking of downsizing? Here's what to keep an eye on

September 16, 2013

You may be planning to lower your expenses in retirement by selling your home and moving into smaller digs. But before you make the big—or small—move, take some time to think about the lifestyle you want and how it might affect those expenses.

Picture your "lifestyle reality"

Alisa ShinAsk yourself some specific questions about how you want to live and whether you could do that if you lived somewhere smaller. "There's a financial reality, but there's also a lifestyle reality," said Alisa Shin, a senior wealth planner with Vanguard Asset Management Services™.

As you picture the way you want to live, you'll want to build some flexibility into your plan to get there, so you can adjust it as needed.

Ms. Shin suggests a short stint living in a new type of home or location before making a permanent move. Perhaps you could rent a place near your current home that's similar to the kind of space you're thinking of. Or, if you're thinking of relocating, you might take an extended trip to the place you're considering.

"Go try it before you invest a lot of money in a change. You might find it's different than what you expected it to be," Ms. Shin said. Conversely, it might be a perfect fit.

Picture where you'd like to live when you retire

Answering questions like these can help you envision the retirement lifestyle you want to pursue.

  • What kind of environment most appeals to you?
  • What style of home do you want to live in?
  • What types of activities would you like to be near?
  • Do you want to be close to family? (How close?)
  • Do you plan to do more traveling?

Location, location, location

Where you live can affect your expenses in many ways. If you're picturing yourself in a little condo near the water or in an urban hub such as New York City, Chicago, or Los Angeles, you may need to plan on paying more.

Homes in waterfront or more cosmopolitan locations generally cost more because of greater demand. The median sale price of a two-bedroom apartment in Manhattan in 2012 was $1.26 million, reports real estate firm Douglas Elliman. The median price for the same size apartment in Nashville, Tennessee (rated the best place to retire by Bankrate.com), was $127,250, according to real estate website Trulia.

Your sale price—and your sale cost

If you're expecting a tidy sum from the sale of your home, do a little research on the recent selling prices of similar homes in your neighborhood. Although the housing market has improved, prices are still below their 2006 peak, so you might have to settle for less than you originally estimated.

Other questions to ask yourself before putting up the For Sale sign: How much (if anything) do you still owe on your mortgage? Will you need to repair or renovate your home to attract buyers? Also, remember that closing costs will come out of your sale proceeds, as will your agent's commission.

So how much will you have left over after you sell? Here's something to think about: The Center for Retirement Research at Boston College reported that older adults who moved in the 1990s and early 2000s ended up with an average of just $26,000 after buying another home with the equity from a sale.

Community matters

Independent living centers can offer numerous amenities, and many provide for a later transition to an assisted living residence. Here too, bear cost in mind: The Boston College researchers reported that in 2012, the average monthly bill for residents of such communities was $3,803.

Note:

  • Vanguard Asset Management Services are provided by Vanguard National Trust Company, which is a federally chartered, limited-purpose trust company operated under the supervision of the Office of the Comptroller of the Currency.
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