Assessing the Option of Downsizing Your Home

Louis Butera |

As empty nesters approach retirement and move toward a new phase in their lives, they often face the question: does it make sense to downsize? Considerations to start thinking about:

• Do you want to spend your retirement years in your current community?
• Will your home still suit your future needs and preferences?
• Will downsizing generate extra cash flow to help fund your desired retirement lifestyle?

We recommend taking a forward-thinking approach to plan out your financial future after retirement and explore different home options at least a few years in advance of deciding to downsize.

Looking back and Planning Ahead

Did you move to a large home in a high-ranking school district so your children would have the advantages of space, community and a quality education? Now that the kids are grown and out on their own, do you still use the space in your home?

Does it still make sense to pay higher taxes to live in a prime school district? Are you tired of climbing the stairs in a multi-level home, dealing with house and yard upkeep?

Have you have always dreamed of living in the city? On the beach? Perhaps now is the time to explore a different part of the country or to investigate adult communities that offer extra amenities and a calendar full of activities. Communities may include both initial buy-in fees plus ongoing rental fees.
Condominium living can be easier than owning a home, but it does come with a monthly Home Owners Association (HOA) and property taxes. You may not miss mowing the lawn but be sure to calculate monthly HOA fees into your future cost estimates. Discovering the choices and the clarifying the cost of each option will help to define your future.

Effective financial planning requires an evaluation of pending retirement income adjustments, estimating your future home costs after downsizing, and the tax considerations of the sale of your current home. Butera Wealth Management (BWM) can help you assess your options, running the different scenarios for income and expenses so you can make an informed choice.

Understanding the Big Picture Impact

Moving to a new home more in line with future lifestyle needs is something many adults look forward to. Often it means living closer to shopping and the activities they enjoy. Lifting the weight of clutter and collections of possessions that are no longer useful can be freeing.

Downsizing can also free you from the cost and time commitment of maintaining a home that’s too large for your future lifestyle. It allows you to take your current home’s equity and use it toward the purchase of a new home more aligned with your needs. Downsizing can help to pay off your mortgage or lower your monthly payments.

Strategic planning includes and evaluation of how taxes will impact your profit from the sale. You’ll want to understand any capital gains or other tax implications of the sale, especially if you aren’t rolling over the proceeds into a new home purchase, and determine any impacts on your overall retirement and estate plan.

For example, currently, a couple may treat up to $500,000 as tax free from the profit on the sale when filing jointly, $250,000 for single people (assuming you’ve lived in the home for at least two of the last five years). 3 The net sales proceeds (selling price minus the selling expenses) are the basis for the calculation of profit. The basis is adjusted by calculating the original cost of the home plus the cost of capital improvements.

You may want to consider relocating to a state with lower property taxes or no state income tax. An adviser at BWM can help you assess all of the implications of your home sale and evaluate the most appropriate financial course of action to manage the proceeds.

Getting your “House in Order”

Setting up for a successful outcome also entails preparing your home for sale in advance to maximize its value. Declutter and make necessary updates and repairs ahead of time so you can relax later and transition easily to the enjoyment of a new home. 4

A real estate professional can give you tips about preparing your home for sale and assist you with exploring new home options. 

Moving to a smaller home can free you from the expenses and time commitment of a house that no longer suits, or let you relocate to be closer to family or friends. Downsizing may also enable you to lower your housing costs, reduce the amount you need to withdraw from other investments and enable you to budget for additional travel or other activities you enjoy.

BWM’s focus is understanding your goals. Keeping your interests at the forefront, we develop and implement a comprehensive financial plan that will help you to your retirement dream home.


NOTE: This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Louis Butera to provide information on a topic that may be of interest. Copyright 2019, Louis Butera Wealth Management, LLC.