The vast majority of retirees will, one day, sell their longtime residence in favour of something more conducive to their retirement lifestyle. If you spend summers at the lake and winters snow-birding somewhere warm, maintaining the home you raised your family in might feel like an incredible amount of work. Perhaps a place with less grass to cut, sidewalks to shovel, or bathrooms to clean is calling your name!
What considerations should a retiree make when it comes to downsizing? How do you pull off the transition with minimal disruption to your life and finances?
Start by consulting with professionals. Downsizing may sound straightforward in theory, but in practice there are a number of moving parts that benefit from professional guidance. Your Financial Planner is a great starting point for developing a strategy, but he or she can only work off so many assumptions. You’ll want a real estate agent to give you an appraisal on your existing house, advice on how to maximize the sale price, and listing prices for your next destination. You’ll need a mortgage professional to understand any penalties on your existing mortgage (if you have one) and the best financing strategy for the new home or condo. You may even need to consult with your tax accountant, if you own more than one property, to get a handle on your Principal Residence Exemption.
Build a game plan for the cash flows. Are you going to fund the down payment for a new home from cash, savings, or investments? How big of a down payment should you make? Should you carry a mortgage on the new residence or pay cash? How should you invest surplus proceeds from your house sale? These are all important questions that your Financial Planner can help answer. If the borrowing costs are low today, you may find it advantageous to carry a larger mortgage and invest more of the proceeds. If borrowing costs rise in the future, you should have a plan for tackling that mortgage balance. Developing a solid roadmap for how you will handle future changes will give you the peace of mind that your downsizing decision won’t derail your retirement plans.
Organize and write out the details. If you’re planning to hire movers or do it yourself, make sure you create a checklist. Packing boxes, check. Cleaning time, check. Vehicles for transport, check. If your new home could be delayed by builders or contractors, create a Plan B for where you and your belongings can stay. If your lender requires a down payment on the new place, prior to the first one selling, be sure you know exactly where you’re getting the money from and where you’ll put money back.
Leaving your family home can be daunting and is not a decision to take lightly. Downsizing in retirement is a BIG change. Your lifestyle over the past decade (or two, or three, or more) will certainly be disrupted, but not necessarily in a bad way. By getting yourself organized and prepared, both physically and mentally, you can be assured of a less stressful transition.
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