Is It Time to Downsize?

by Jesse Ramos

So you’re retired, the kids are out of the house, you and your spouse finally have the place to yourself and you are ready to enjoy your retirement. The question is: do you still need a four- or five-bedroom house, with front and back yards, equipped with a swing set, sandbox, tire swing and above-ground pool?

You begin to notice how much time landscaping and upkeep take out of the retirement you have worked your whole life to enjoy as you spend hours mowing the lawn, plowing the snow and weeding your flower beds. The question finally resonates one day under the hot sun as you skip a golf outing with your friends to mow the lawn and sprain an ankle while trying to reach a tight spot under the tire swing that hasn’t been used in over a decade. Should I downsize to a smaller home or condominium?

There are many financial factors that play a large role in the answer to that question.

First, you are going to want to analyze your personal financial situation and determine if moving would be a benefit or burden. There are several points that need to be addressed in making this life-altering decision. Do you still owe money on your home? How much equity is in your home? What is your home worth? What will you do with the proceeds of your home sale? Do you have heirs that you were hoping to leave the home to? Are you hoping to leave a financial legacy to children or grandchildren? How can you provide a financial legacy if you sell your home? Are you hoping to rent or purchase an alternative home? What are you willing to spend on a new home? How much do you pay for things such as homeowners insurance, landscaping, repairs, etc. that could be used differently?

Unfortunately, I do not have the space to discuss all of these important points and will instead focus on just a few of what I consider to be the most important.

Debt and current housing market prices may be a primary factor in calculating the financial ramifications of this decision. One of the better tools that you can use to determine the current situation of the housing market is the Standard and Poor’s Case-Schiller housing index. Debt and equity are probably the most important factors to take into account when making your initial determination. How much money do you still owe on your home? If you still owe money, you are going to want to have your home appraised and do an evaluation of real estate values in your geographic area. Market conditions will play a large role in determining whether or not there is any financial benefit in selling your home.

Another factor that should be included in this decision would be that of legacy planning. If your home is paid off, you may have been hoping to leave a financial legacy to your children with your home. This decision may be keeping you in your home or causing you to wonder how to preserve that legacy upon selling your home. There are many ways to keep some, part, or all of your legacy intact after selling your primary asset. Whole life insurance, or permanent life insurance, is available and can help counter this dilemma.

The world of life insurance is a complicated one, so you must do your due diligence before relying on a strategy like this one. Before making this important decision you are going to want to have a conversation with a trusted financial advisor or insurance agent of a reputable company. You are going to need to find out how much money you will need to invest in order to leave the amount of money you desire to your heirs. Once you have specific quotes and have possibly gone through an initial underwriting process, you will be able to determine the percentage of your home sale proceeds
that are needed in order to keep that legacy intact.

The benefits of life insurance versus a home can be the fact that the proceeds from a death benefit are liquid and won’t present the sometimes ugly situation of which child gets to live in the home, the division of the proceeds, and whether or not to sell or preserve the home. With life insurance you need to simply name the beneficiaries and the percentage of the proceeds that will go to each heir without
your heirs having to deal with the often messy distribution task.

The decision to downsize is an extremely complex one, and much homework needs to be done before determining whether or not it is the right decision for you.

Jesse Ramos works for Northern Rockies Financial Group in Missoula, assisting families across Montana with understanding their financial needs. Jesse can be reached at jesse_ramos@glic.com or 406-728-6699 with any questions.

Disclosure: Neither Northern Rockies Financial Group nor the Guardian Life Insurance Company of America are in any way affiliated with any school district, individual school or with the Teacher Retirement System of Montana. Refer to your school district, individual school or TRS with any benefits questions relating to your specific situation. 2016-32567 exp 12/18

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