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Downsizing your home: A few things to consider before posting a for sale sign

Published on: April 6th, 2021

Thinking of downsizing your home as retirement nears? Do you buy again, or rent? The decision is about more than the money, as most people will live longer than they believe.

Some people look to sell their family home and downsize when they retire. The question then is what is the best option moving forward: buying a smaller home or renting?

The choice between these two options is more than just a financial decision. “You first have to consider the advantages and disadvantages of being an owner versus a renter,” says Glenn Stewardson, CFP®, FMA, Financial Planning Advisor, Assante Capital Management Ltd. “One big difference is in the level of responsibility and freedom. You can enjoy more freedom when renting since you can leave the rental when your lease is up. As a renter, you have less responsibility because the building owner takes care of the maintenance work.” 

Renters have less control than owners over things like painting, decorating, repairs and renovations and even pets. This can be a challenge when you’ve been a homeowner for a long time, that change to a renter is not always an easy thing to handle.

“Switching from home ownership to rented accommodation is not always a good thing for everyone,” says Stewardson. “Usually, people who are nearing retirement and selling their houses have already paid off the mortgage,” he points out. “If they move to an apartment thinking they will cash in on the increased value of their home.” 

Stewardson recalls a couple who had decided to sell their home while market prices were up. They came to see him for advice and a retirement income plan. With a further discussion describing the next 10-20 years of their retirement living in an apartment, that changed their minds. When they started looking at living with elevators and long hallways with no yard, they decided to keep their home. Twelve years later they believe it was one of their best retirement decisions. 

So downsizing or renting really depends on your objectives.  Selling your home and then renting allows for investing a portion of that money from the sale of your house may be a serious consideration for you, especially if you are counting on it to be part of your retirement nest egg. Stewardson discusses one solution might be to sell your house and buy a smaller and less expensive home. That way, you’re still a property owner and possibly reduce some monthly costs and have money to invest. There is the added benefit of not having to pay capital gains tax on the proceeds of your home sale, if it is your principal residence.

Once again, for many it’s a matter of lifestyle. Among all the variables around renting or buying by downsizing in retirement, one thing is certain: One size most definitely does not fit all. A discussion with a financial planner can help you assess your personal situation and find the solution that best suits your needs.

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.

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