When Virginia Carolan, a retired Columbia University administrator, found that her New Jersey home required more maintenance than she cared to put into it, she began to think about downsizing.
Because she liked her neighborhood and didn’t want to make a move she would later regret, Carolan, 66, began renting an apartment a few towns away. She slowly divided her belongings among her new one-bedroom pad, a storage facility, and a charity before putting the home she’d lived in for nearly four decades on the market.
“People said, ‘Why not move to Florida?’ or ‘What about Manhattan?’ but I didn’t want to buy something and then think, ‘I wish I waited and really thought this through,’” she says.
Uncertainty about making the right retirement moves is rife among the vast baby boom generation. With 10,000 boomers turning 65 every day for the next 18 years, according to the U.S. Census Bureau, one thing that isn’t being downsized is concern about where and when to retire.
Mark Patterson, founder of Failsafe Retirement and a retirement blogger, says he recommends seniors experiment with downsizing before they commit to it.
Practicing what he preaches, Patterson and his wife are in the process of moving from their 4,500-square-foot, three-level home in Nashville, Tenn., to a 1,500-square-foot condo in a rural area two hours away. The Pattersons have spent the past 1 1/2 years splitting time between the two spaces.
Patterson says because they built their home in 1980 and have “a ton of equity” in it, the retirement plan he’s put together now includes selling that property and investing those dollars to generate income. While the couples’ original intention was to live in the home “forever,” repairs and general upkeep became more expensive and bothersome than they had imagined.
“We just had to put on a new roof and a couple of years ago we had to put a new HVAC system in and, in a big house, those are big hits. Taking care of the lawn, I hate that and paying someone else do it, I hate that, too,” he says.
Downsizing personal responsibilities is a common theme among retirees, concurs Brian Fricke, president of Winter Springs, Fla.-based Financial Management Concepts, citing his neighbors who moved from a large home to an ocean-front condo.
“In the condo, the square footage is less, so there’s less housekeeping to do,” he says. “Pricewise it was probably a lateral tradeoff but they’ve downsized their personal responsibilities.”
Fricke points out that for seniors who enjoy frequent vacations or visits to the grandkids, leaving an apartment or condo is as simple as locking the door behind you.
“There’s onsite property management to take care of everything ,” notes Fricke, who says with a home, the owner is the one who’s always on call.
Moving to an area that features amenities within walking distance and scaling back to one car is a cost-cutting measure Fricke says he sees happening among retirees.
In addition to saving on rising fuel costs, this eliminates the additional expense of insurance, which averaged $1,678 per driver annually across the U.S. as of March, according to CarInsurance.com.
Retirement itself is shrinking
There’s a lot more that’s being downsized in the golden years than just the family home, experts say. But while retirees strive to simplify and save, many factors are beyond their control.
“The first thing people are doing is rethinking the definition of retirement,” says Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Securityat the University of Pennsylvania’s Wharton School. “It’s downsizing retirement is what it is. It’s reducing the length of time during which people are expecting to be doing nothing lucrative and increasing the commitment to the workforce, either by staying on the job or by working part time or by doing things that — maybe starting a new company — people had thought about doing but didn’t really take seriously until the economy turned down. What I would say is retirement itself is being downsized and not the other way around.”
According to a May 2011 survey by Transamerica Center for Retirement Studies, 54 percent of workers expect to retire between age 60 and 69. However, more than one-third plan to work past age 70 or never retire.
“There’s a huge amount of political risk right now and so we don’t know what the future of Social Security or Medicarewill be,” Mitchell says. “We don’t know what tax rates will be in the future. Against all that uncertainty the question is: What can one do?”
Patterson, 61, says while property taxes in Tennessee are “manageable,” the taxes on his condo are a quarter of those on his Nashville home. He said he is fortunate that he is able to work remotely and will be able to continue his career through his retirement years in his new location.
People can tighten their belts during retirement, says Wharton's Mitchell, by engaging in what she calls “home production” — cooking their own meals or growing produce in their own gardens.
“The other big unknown is medical bills and the cost of medical insurance and out-of-pocket medical costs and the fact that those are likely to be very high, but we don’t know how high, and that is one good reason to downsize earlier and to save more earlier because we’re probably going to have to spend a lot more on medical costs than we think,” she says.
Don’t downsize your dreams
Retirees with hopes of owning a second home in a different climate don’t need to abandon that goal, but financial advisor Fricke cautions clients that if they’re only going to live there for three months or less, they’d be better off renting.
“When we sit down and just crunch numbers, it’s hard to justify committing that kind of capital whether it’s paying cash and losing the opportunity to earn interest on that money or financing and having to have a bigger income stream from your nest egg," he says. "We think you’d be better off just renting something, then, if you want to redecorate, just rent something different the next time,” he says.
Fricke also suggests that retirees be open to alternative housing, such as assisted living. He says he has seen people hold on to homes and possessions under the mistaken belief that loved ones will treasure them long after they’re gone.
More often than not, those items end up being sold anyway, he says, so it’s important to take stock of the entire family situation when thinking about downsizing.
“I think people should start ahead of time so they don’t crash and burn when they go from ‘I have 30 years of stuff’ on Friday and by Monday ‘I have to go and get rid of all but the last year of it,’" says Patterson.