When I look at my retirement stash, I have to admit it’s kind of small. When I look at my house, I realize it’s kind of big. And when I consider the two together, I think that maybe I should downsize and use the equity in my house to buy a condo or add to my retirement savings and rent.
Downsizing isn’t for everyone, but it’s one of the few strategies available to near-retirees who find themselves short on retirement savings and don’t have time to catch up, says Steven Sass of the Center for Retirement Research at Boston College.
But before you sell your house and move, add up the costs that can chip away at the amount you free up. For starters, fixing up a house to sell often means spending thousands of dollars in repairs and upgrades (new roof, anyone?). Once the house does sell, you’ll pay commissions to real estate agents on both sides of the transaction, usually to the tune of 6 percent of the home’s value.
Packing and transporting enough furniture to outfit a two-bedroom condo will run $1,500 if you move a few miles away and $5,000 or more if you move across the country, according to the calculator at moving.com.
Even after the move, you won’t be home free. Condo association fees run at least several hundred dollars a month, on top of insurance and property taxes, and if the building needs a major improvement, you’ll get hit by a special assessment to help cover the cost. Renting is more predictable but leaves you vulnerable to annual rent hikes. And whether you rent or buy, you’ll surely want to buy new furnishings that fit the smaller space.
Other expenses you might not have considered: If you can’t squeeze Grandma’s armoire into the second bedroom (or bear to part with it), you’ll pay $100 a month to rent a storage unit. Moving far away from friends and family? Factor in the expense of traveling back to the old neighborhood a few times a year.
Moving to a condo or apartment also allows you to cut your utility bills and eliminate yardwork and snow shoveling. Be sure to add up the pluses and minuses before you put out the For Sale sign, not after. (For a ballpark estimate of the costs and savings of downsizing , see bit.ly/movingfinances).
Jane Bennett Clark is a senior editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to email@example.com. For more on this and similar money topics, visit kiplinger.com.