As you reach retirement, it may dawn on you that without the same income that you have had for most of your life, things may have to shift financially.
This can bring on a sense of panic, but provided that you qualify for Social Security and have some good savings behind you, there is no reason that your life should have to change too much.
That being said, retirement is an excellent opportunity to look over your finances and come up with a fresh new plan for the future. Read on to find out just how much you may need to cut costs during retirement, as well as discovering if downsizing is a good idea.
How Can I Cut Costs During Retirement?
One of the most obvious ways of cutting costs once you have left the daily grind is to downsize your home — but is this really necessary?
One of the major benefits of downsizing is that it will save you money, no matter what your situation. A smaller house means fewer outgoing expenses (for the most part, at least). However, there are many other ways in which you could cut costs during your later years and make the most of all the spare time and money you will have:
- Having a good financial plan in place before you retire is the most important way of ensuring that you cut costs and live in financial freedom where possible.
- If you can, you should make a good attempt to pay off any and all debts before retirement begins as this will drastically cut the costs of your monthly expenses.
- Make the most of senior benefits and discounts — many businesses offer specials for retirees, so it is worth looking into this to see just how much money you could save to give you a more comfortable life after retirement.
- If you have a lot of unused items, you could look into regular yard sales to boost your income while you enjoy retirement.
Downsizing Your Home After Retirement
Downsizing your home after retirement is one of the single best ways to save money. Many people strive to own a larger home, but as you get older, this dream may change slightly. This is especially the case if your children have flown the nest and you don’t need as much space as you once did.
There are some significant benefits to downsizing, and there are a lot of people who decide to downsize to retire early, thanks to the cash injection that this can bring.
- You may decide to sell your home and rent an apartment or small property. This can make moving around a lot more simple. For some older people, moving closer to their children and grandchildren or relocating to a new town sounds unreasonable, but downsizing opens up a lot more of these options.
- Saving on maintenance is another reason to downsize. Owning a larger home means regular expenses when it comes to landscaping, repairing wear and tear, etc. In addition to cost, this can cause a lot of stress. If you have spent your life working hard, the last thing you want in your golden years is to be worrying about problems with the home. One of the most smart downsizing ideas is to move to a property that is easier to manage and therefore, less stressful.
- For many older people, mobility becomes an issue, but a smaller property can make life a lot more simple in terms of moving around the home, especially if you opt for a first-floor housing unit with few if any steps and other amenities that can help make retirement easy.
Tips for Downsizing Smoothly
One of the most common concerns of people as they reach their golden years at work is how to downsize your home for retirement. However, this doesn’t need to be a complex process. It is important to be prepared and ensure that you know what to expect.
- Make sure that you are fully aware of how much your current property will sell for. Many people make the mistake of overvaluing their homes in their minds and making plans for the funds before consulting an expert.
- It is also important to research the cost of your new home. This applies whether you are planning to rent or buy. Being realistic about what you will need to spend will give you a much clearer idea of what you will have to play with.
- You should also consider whether you will have to pay tax on the sale of the home and how much this will be. Currently, some couples may receive a tax-free allowance on the sale of a home or other gains, and single people are allowed half the regular amount.
- Finally, you should consider that there will be closing costs involved in the sale of your home, and these should be included in your calculations. One of the worst mistakes that people make when downsizing after retirement is not deducted enough from the sale of their home, which leaves them thinking that they will have more disposable cash than they do.
When to Downsize
Most seniors will look to downsize their homes in their 60s or 70s, but is there any right time to make this move? Essentially, no, there isn’t. However, the earlier you take the leap, the more time you will have to enjoy your new, smaller retirement home.
Keep in mind, however, that once you reach the age of 70, you may be eligible to move into various retirement communicities across the country which have a wealth of amenities and can be a very pleasant living experience.
Downsizing in your 60s may not be a wise move if you plan to take advantage of one of these establishments. Thus, waiting those few extra years to downsize at 70 could be the more viable option.
There are numerous ways to lower your living costs during retirement, from clearing your debts and personal loans to having a good financial plan but none are quite as effective as downsizing your home.
Doing this not only gives you a financial benefit but it can also be a wise move practically. There are some important factors to consider when deciding whether downsizing is right for you such as thinking about tax and the value of your property — but all things considered, this could be one of the best financial moves you ever make.