Ask Money


Chris Farrell Mar 4, 2009

Question: I’m 50 yrs old and have been thinking about downsizing and relocating for a few years now. I am self-employed and can take my work with me, so my income is not tied to a particular location.

My plan is to sell my current home, of which I own about 70%, and take that cash to buy a different house that would better suit my needs as I age, etc. Hopefully I could buy this house without a mortgage, though I would consider taking a small 10 yr mortgage if necessary.

I realize that it may be impossible to sell my house in the current market, but if I DID sell my house near the market rate, and put the money into another house in a similarly deflated market, would this be a foolish endeavor? Or is it ok since I’m just moving my equity from one house to another? Thanks. Anne, Olivebridge, NY

Answer: As Jane Austen wrote in Emma: “Ah! There is nothing like staying at home for real comfort.” Problem is, many people’s homes–their most valuable asset and the foundation of their retirement plans–provide scant comfort these days. At some point, of course, real estate prices will stabilize and economic growth will pick up again. The question, as always, is when–and by how much.

That said, I think your idea of downsizing and taking into consideration aging is spot on. For one thing, you’ll have a nice equity cushion going into retirement, and one of the worst ideas coming out of the boom years was that it was okay for retirees to carry a hefty mortgage. That was bad advice in most cases.

Large homes cost a lot more to maintain and are subject to higher property taxes. The savings from lower energy costs and other expenses associated with running a smaller home compound over time. Plus, as we age, few of us want to perform maintenance. Smaller yards and single-level homes become more attractive, as do condominiums and townhomes with maintenance staffs.

So, no, I don’t think what your contemplating is a foolish endeavor at all. I hope more people are building downsizing into their retirement savings plan.

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