Downsizing In Retirement | Not A One Size Fits All

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Real Estate

There’s no one-size-fits-all solution, but there are options if you find yourself house-poor in retirement. 

Scott Burns: Is downsizing in retirement actually possible?

Some columns are less popular than others. That was true, in spades, for my column last Sunday about recent Federal Reserve data on household net worth and home equity.

The data showed, as it has for decades, that most households have at least half of their net worth tied up in their home equity.

We love our homes. A lot. This may work well while we are working. But it’s not likely to work well when we retire.

Readers protested.

How could renting be better, some asked? Others noted that they didn’t think it would be possible to gain anything by leaving their old house and moving to another.

For some, such comments are entirely justified. Downsizing could be too difficult and too expensive to bring a meaningful benefit.

But I wasn’t suggesting that we become a nation of renters or that everyone should downsize at retirement. I was pointing out that many Americans are likely to be house-poor when they are getting along on Social Security and their retirement accounts. That can be fixed by moving.

As problems and their solutions go, it isn’t overwhelming. And it doesn’t require a new government program or a Congress that agrees.

The gritty part here is that shelter decisions aren’t one-size-fits-all. They are case-by-case. Here are some examples of changes that work. And changes that may not.

Winners of the Home Appreciation Lottery. If you bought the right house at the right time, your home appreciation could be your entire retirement plan. I first observed this while living in Boston. I learned that many readers in New England owned houses that had appreciated wildly. Many were worth six to 10 times their owner’s pre-retirement income.

Those readers could retire, sell their homes in New England and move to new homes in Florida. In one step, they escaped winter, high utility bills, high income taxes and high real estate taxes. They liberated enough money to supplement their Social Security benefits nicely.

[ Some Texans sell their "work" houses to move to a lakehouse or other second home. ]

I haven’t heard from any Home Appreciation Lottery winners here in Texas. I’m sure there are some, but Texas hasn’t been like the coasts. Today, a home in Texas has become part of the retirement planning for Californians.

One indication is the cost of a U-Haul move. The cost of renting a 26-foot U-Haul truck to move from Dallas to Los Angeles is $1,469. The cost of moving the other way, from Los Angeles to Dallas, is $4,690.

It’s all about the flow. Significantly, the typical single-family home value in Dallas, according to Zillow, is $312,000. The same value for Los Angeles is $1,010,000. For some, moving is a great “investment.” The only good thing about this for Texans is that Californians are more eager to pay record prices for our homes than our fellow Texans are.

Moving to the family vacation home. If you’ve been fortunate enough to be able to support a home near where you work and a second home for vacations, “downsizing” is simple. You sell the work home and move to the vacation home. Your now-adult children will love it, and it won’t feel like downsizing. It will feel like coming home to a life of leisure. Just as many suburbanite Bostonians move to a Cape Cod summer house when they retire, many Texans can move to a lakehouse.

Liberating the equity of the work home, even when the lakehouse gets a new kitchen, produces more income, and the taxes on the vacation house will likely be much lower.

These two cases qualify for membership in the “nice work if you can get it” club — but they apply to a significant number of homeowners who may find themselves long on home equity but short on retirement savings.

Big house to small condo or small house. We love our space, our walk-in closets and our feed-the-multitudes kitchens. But there is a time when we just don’t need that space, unless we insist on being the perpetual repository for every toy and report card our kids have ever had.

Once we understand that we don’t need to keep everything, it’s possible to downsize locally and benefit from lower shelter expenses. Less really can be more.

The operative word, however, is “possible.” The most common path to failure, in my listening to readers, is trying to move from an older, spacious home to a new, but smaller, home. One reason is that the new home will be priced as a new home. Another is that anything you might save on utilities will be totally overwhelmed by the increase in real estate taxes.

So how do you downsize?

The easiest way is to move from a high-expense location to a lower-expense location. Usually that means moving from an urban area to the countryside. It can also mean changing from a large home to a small home, or from a home to a duplex or condo.

Getting this done is a numbers and search game. Find the house, do the numbers. If the numbers don’t work, keep looking. And be flexible.

Scott Burns | Dallas Morning News

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