The decision to relocate for retirement can be an emotional one, a hugely exciting yet massive financial event. While some people buy bigger, grander or more expensive retirement homes, downsizing for retirement is the savvy strategy — especially for those of us who have not quite saved enough for our golden years.
Running out of money is one of the main concerns when approaching retirement. While there are always options such as working part-time, for the unprepared, it could be wise to look a little closer to home when looking to avoid depleting your nest egg prematurely. According to TD Ameritrade, an estimated 42% of Americans plan to downsize in retirement, and it’s a move that could end up spelling the difference between struggling financially and having enough cash to cover the bills for the rest of your retirement.
Why Downsize?
Quite simply put – there’s no point in paying for space you don’t need. For example, if it’s just you and your spouse, you probably don’t need four bedrooms and three bathrooms. Even if you plan to pay off your mortgage completely before you retire, you’ll still be paying property taxes, homeowners insurance, utilities, and property maintenance, all of which will be higher on a larger home. Anything in excess of that will simply be a cost that you don’t need to bear.
Another oversight by many retirees when calculating their living costs is taxes. If you’re looking to stay in the same area but downsize to a smaller space, your property taxes are likely to go down as well. Property taxes are a function of your home’s value times your local tax rate, so if you’re dealing with a space that’s smaller and therefore less valuable, you’ll pay less for the privilege of living there.
Alternative to Downsizing
If you can’t bear the thought of leaving your family home, or you can’t find a smaller property that hits your requirements, there is another way to stay put – use your home to generate income.
By renting out a portion of your home on a full-time basis (spare bedroom, a separate finished area, like a basement or garage) you could supplement your retirement income and stay where you want to be. If you don’t want a permanent tenant, see about renting out your home seasonably. This works if you live near a major attraction, whether it’s a ski resort, theme park, or beach, and are willing to have guests on weekends. And, if you rent out your home for 14 days or less during a given year, you can collect that rental income tax-free.
The more money that will be needed to maintain the home, the less than you will have available for travel. Therefore by renting out portions of your home, you’ll be able to travel more and enjoy your golden years like you always dreamed of.
SMART Retirement
Downsizing your home is a smart move that could alleviate some financial stress when you’re older. While moving away from the family home is a daunting thought, remember that there’s always the option to create new memories in a property that doesn’t strain your budget.
Are you ready to get SMART about your retirement? CKS Summit Group know how important your income is when you approach and hit retirement. What is SMART Retirement™? SMART is the Strategic Movement Around Retirement Taxation and its goal is to limit your post-retirement taxation. Benefits include:
- How to use tax arbitrage to dramatically increase your retirement income without risk.
- Ways to reduce the amount of money you give to the IRS during retirement.
- Why rate of return is Wall Street’s half-truth and how they use misleading math to sell you.
We’re here to help you target the lowest Tax Rate you can legally achieve during retirement, helping you attain the most enjoyable retirement possible. By setting up your complimentary strategy session, we can ask the right questions enabling us to offer retirement income options specifically designed for you.
To get started, simply click here, or give us a call on 586-286-5820, we look forward to hearing from you.
