Residential: How to Downsize for Retirement
Downsizing for retirement is a significant decision with emotional and financial implications. Here are steps to make the process easier.
Step 1: Evaluate Your Reasons for Downsizing
Consider why you want to downsize and weigh the pros and cons. Ask yourself:
- Is your current home suitable for a retired lifestyle? Can you maintain it for the next 20-30 years or afford help?
- Do you need to be closer to your children or relatives for care?
- Do you want to stay in your current locality or city, or are you open to relocating?
- How much space do you need, and what kind of property would be easy to navigate as you age?
- How would downsizing impact your daily expenses (bills, taxes, maintenance)?
- Are you emotionally ready to part with your home and long-held possessions?
- How much time and effort are you willing to invest in the downsizing process?
Step 2: Calculate the Costs
Downsizing can reduce expenses, which is crucial for retirees often living on a fixed income. Consider these steps:
- Find out what your home is worth: Consult multiple real estate agents or get a professional appraisal to determine your home’s value.
- Budget for your new home: Set a budget for your new home, considering associated costs like condo fees and the cost of living in different areas.
- Repairing or renovation costs: Factor in potential repairs or renovations to your current home to maximize its sale price. Consult an expert to prioritize cost-effective improvements.
- Selling and buying costs: Account for realtor commissions (around 5%), closing costs (legal fees, title insurance, land transfer taxes), and other expenses involved in selling and buying homes.
- Moving costs: Consider the cost of hiring movers, buying new furniture, or renting storage units if needed.
Step 3: Take Some Time to Plan
Once you decide to downsize, plan your move carefully:
- Set a deadline for moving.
- Decide on the type and location of your new property.
- Research MLS listings.
- Create a timeline for preparing your current home for sale.
- Decide whether to sell your current home before buying a new one, considering your financial situation and temporary living arrangements if needed.
- If you still owe a mortgage, consult your lender to assess your options.
Step 4: Donate or Sell What You Don’t Need
Declutter by donating or selling possessions that won’t fit into your new home:
- Start this process well before your planned move to manage the emotional aspect and the time it takes.
- Selling items can help offset moving costs.
- Consider hiring professionals to assist with decluttering if necessary.
Step 5: Sell Your Home and Find a New One
Decide whether to handle selling and buying simultaneously or sequentially:
- Choose a trustworthy realtor and if needed, line up a reliable real estate lawyer.
- Ensure your new home fits your budget, lifestyle, and potential future mobility needs.
- Be realistic about your requirements for the next 20-30 years.
Step 6: Move to Your New Home
When it’s time to move:
- Hire professional movers or enlist help from friends and family if practical.
- Plan the logistics to ensure a smooth transition to your new home.
- If your new home cannot accommodate all your furniture and belonging, use the help of a professional estate liquidator* to evaluate all items, arrange, publicize, and conduct the sale to get you the best possible value.
Source: WOWA, Canada’s Largest Personal Finance Encyclopedia
