Should Your Boomer Clients Consider Downsizing Before Retirement?
Their kids are grown and many empty nesters are rattling around in five-bed, four-bath suburban homes. It’s not like they see the kids for overnight stays on a regular basis, and so many are wondering what to do with that extra space.
They could rent out a room, but that proposition seems … iffy at best. Really, who wants a stranger rummaging around in the refrigerator for a midnight snack?
The solution for many boomer clients who are 10 years or less away from retirement might be simple: downsize, especially if they have considerable equity in their home.
Less is more
Moving into a smaller house — whether it’s in retirement hot spots such as Florida or Arizona or even your clients’ childhood hometown — can be beneficial to their bottom line in many ways.
For one, a smaller home likely means smaller utility bills. It’s much cheaper to heat and cool a two-bedroom bungalow than it is a five-bedroom, two-story McMansion, notes Ben Garson in writing for Realtor.com (http://tinyurl.com/aobkrzf).
But it isn’t just utilities where your clients will save. A smaller house means a smaller tax burden and a lower insurance bill. With the housing market still weak in huge swaths of the country and interest rates at all-time lows, your clients will most likely have a favorable mortgage — that is, if they don’t buy the new house outright.
Live long, and prosper
With economists and financial planners in recent years warning of “financial death” — retirees outliving their retirement benefits — going smaller can stave off this possibility as your clients reach their 70s and 80s. Your downsizing clients might have to live on less than the industry advises because if they’re like the rest of the country, their 401(k) plans took a beating when the economy tanked in 2008. Unless your clients work or worked in an industry with a strong retirement plan — say, railroads or maybe a teacher’s union — they probably don’t have a pension to help support them.
If clients stave off applying for Social Security benefits at age 62 and instead work longer, it will also help their bottom line when they do decide to kick back.
For every silver lining, there’s a dark cloud
The soft real estate market is a double-edged sword, says The Wall Street Journal (http://tinyurl.com/akepzt9). Although it’s true your clients won’t likely pay a premium for a new house, it’s also true they might have a hard time getting a good price for their old home. And if they want to live in a retirement hot spot, they’re going to find the prices higher than in their hometown.
Besides the economic considerations, there’s the emotional side to take into account. Pulling up stakes and selling off most of your worldly possessions is easy in theory — “Do we really need that seashell?” — but actually going through with it is a much tougher proposition — “We got it on our honeymoon.”
Then there are your clients’ grown children to consider. Many will resist their parents selling the house they grew up in, and often the kids are more emotionally attached to all that “stuff” than your client is.
Downsizing, obviously, can be a boon for some of your boomer clients, but it’s easier if they’re on sound financial footing before taking that big step.
We hope this information was useful to you, your clients and their families. To get more information regarding this or any related topic, please visit our website www.TEPLG.com or call us at 630-871-8778.