The truth about ‘downsizing’

Downsizing the family home is a term used by lots of people in my parents’ generation and it’s now becoming a ‘buzz word’ for the baby boomers.

So what does that mean? What exactly is downsizing?

A few years ago, whilst working in real estate, lots of older people told me that the reason they wanted to sell their house was because they “needed to downsize”.

At the time I accepted that – but I didn’t really understand it. Why on earth would you throw away 30 plus years of memories and collectables to jam yourself and your dearest possessions into a home that’s one third the size, with no room to keep all your familiar things?

It didn’t make sense to me.

But then when I worked as a mortgage broker I saw some ‘hidden reasons’ as to why people have a need to down-size.

My parents’ generation and indeed many of the baby boomers have never had the opportunity to provide adequately for their retirement. So, once they retired – all they had to live on was a government pension. As we know that’s barely enough money to provide more than a basic standard of living.

With things being a constant struggle, and the only asset they owned being the family home, it made sense to sell that home and buy something smaller. (Thus the term – downsizing)

So, in doing this, the maintenance costs on a smaller place are less and sometimes the running costs are also smaller. Regardless of where you live – your utilities will be pretty much the same cost as they are now. (unless of course you move to another country)

In the past, selling a larger house and buying a smaller unit or town-house would result in a reasonably good-sized chunk of money left over after the sale. This could then supplement the old-age pension and the quality of life for the retired was improved.

But the property market doesn’t stay static. Not only have house prices risen, so too have the prices of units. So the tired and in-need-of-maintenance homes owned by the strapped-for-cash retirees are no longer fetching as good a price as they could have.

Their owners just don’t have the funds to re-furbish and re-paint to ensure a better price. And if they do, they possibly won’t have a need to sell. Often these days, there won’t be a good-sized chunk of money left over at the end of a sale. It can seem that there is no point in ‘downsizing’.

Some people have decided to continue on the downsize plan. For them it means that they can live in a smaller and newer house that requires little in maintenance and maintenance costs for the rest of their lives.

In some cases, some of them have had to take out a mortgage to do this and therefore put their already stretched finances under even more strain.

So where is all this leading? Well, I guess it all comes back to planning; planning now for your retirement and for the major financial decisions for the future.

If you’re still working and feel that you’ll have a need to ‘downsize’ your home (for whatever reason) then perhaps it makes sense to do so before you retire from the workforce. That way at least you’ll still have a renewable income to ease the costs of selling and moving house and perhaps a small mortgage.

Or maybe it would just make sense to start working on a household budget – to ensure that you can live on your retirement money without the need to sell your most loved asset, your home.

 

(c) Carmel McCartin – Budget Bitch

The words expressed in this post are, as always, my personal opinion. If you want to argue  – send me an email.

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