The money saved on a smaller home can free up extra bucks for a better retirement.

3 minute read

Whether you’re thinking of downsizing to a smaller house or a condo, taking the life-changing step of selling your current house to buy a more affordable home in a href=”/retirement/”>retirement can be a smart move. For one thing, if you cut monthly and annual expenses substantially by living in a smaller residence, your retirement income can stretch further.

And if you don’t have as much saved for retirement as you planned, downsizing could help you still retire on track or even prevent you from having to punch the clock at a part-time job long after you’ve waved goodbye to a full-time career.

Curious about all the ways downsizing can free up more money in retirement?

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1. Smaller mortgage payments

Depending on how much equity you have in the house you sell, you may be able to put down a sizable down payment when you purchase a smaller home. In fact, if you’ve already paid your house off, you may even be able to purchase the new home outright, eliminating a mortgage altogether and freeing up hundreds or even thousands of dollars a month.

Find out: How 34 Financial Experts Suggest Preparing Finances for Retirement

2. Lower property taxes

Since you’re taxed on the value of your home, buying a smaller, less expensive house or condo can lower property taxes considerably.

However, since property tax rates vary greatly by city, municipality and state, unwittingly buying a less expensive home in another city that has notoriously higher property taxes could still mean a high property tax bill at tax time.

Depending on square footage and other factors, you may free up even more money you’d have otherwise spent on property taxes if you buy a retirement condo.

“Because of a number of factors, including square footage and number of bedrooms, you can typically expect to pay lower property taxes on townhouses and condos than on single-family homes,” according to Realtor.com.

Find out: 4 Reasons Americans Fear They’ll Never Retire

3. Lower utilities

Generally, large houses are known for running up big utility bills. While how you live plays a huge part in how much electricity and heat you use, if a house is well-insulated and has efficient appliances, you’ll probably pay much less in utility costs on a 1,500-square-foot-home versus what you’d fork over with a 4,000-square-foot-home.

Find out: 6 Eleventh-Hour Strategies for Baby Boomers Facing America’s Retirement Crisis

4. More affordable homeowners insurance

If you live in a 5,000-square-foot-home, you’ll probably pay higher homeowner’s insurance premiums than if you live in a 2,500-square-foot-home, according to insurance resource Policygenius. That’s because the larger and more expensive the home, the more it costs to rebuild.

However, factors such as location and age of the home determine the premium as well, so do your research on what your homeowner’s insurance will be before closing on your new downsized home.

Find out: 6 Surprise Costs that can Drain Retirement Savings 

5. Lower maintenance costs

Downsizing to a smaller home will free up a good chunk of money on maintenance savings alone. That means your retirement income will stretch a little further each month and every few years when a big maintenance project comes due.

For example, you’ll pay thousands of dollars less for someone to paint your modest ranch home or bungalow than you’d pay for them to paint a two-story house or sprawling home. Smaller homes have smaller yards, so you’ll pay less for lawn care and landscaping, too.

Find out: 7 Ways to Reduce Debt to Have More Money for Retirement 

6. Less expensive appliances

If you downsize to a smaller home, you probably won’t need to spend as much to replace appliances like the furnace or air conditioner, since you have less space to heat or cool. Those two appliances or an entire HVAC system can really set you back, especially if you have to make monthly payments that cut into retirement income.

The national average cost for a standard efficiency natural gas furnace ranges from $2,150 to $5,900, with most homeowners paying around $3,100, according to HomeGuide, a professional directory and consumer home repair resource.

A new air conditioner unit costs between $3,350 and $5,912, with homeowners spending around $4,631 on average, according to the same source. Replacing an entire HVAC system with new ductwork, a new central air conditioner and a new gas furnace ranges from $6,820 to $12,350 on average, says HomeGuide.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

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