What you need to consider before downsizing in retirement

By Doug Carroll | October 10, 2023 | Last updated on October 11, 2023
3 min read
Senior woman calculating her expenses at her apartment

People often talk about downsizing their home when they get to retirement. Practically, it doesn’t make sense to clean and maintain unused space once the kids have flown the coop. Financially, this may be intended as a way to release tied-up capital to supplement retirement income, but just how much becomes available, if any, depends on what — and where — you have in mind.

Whether you are driven by the finances or just see it as a lifestyle choice, you need to carefully think through how to proceed. A misstep could be costly, so here are some things to mull over.

Will downsizing really be a financial windfall?

All else being equal, it costs less to maintain a smaller property. But between here and there is the matter of moving. Maybe you’re leaving a house in the big city for a humbler abode further away. However, if you’re moving within the same geographic market, the financial effect may be neutral at best, despite reducing your physical footprint.

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Between the real estate commission on selling the old place and the land transfer tax on buying the new one, you’re likely well past 5% of your sale price before you even hire the movers.

Add to that some updated appliances, new or smaller furniture, window coverings and other settling-in costs, and your physical downsize could be more of a lateral move financially. That’s not necessarily a bad thing, but thinking through the finer details can give you a clearer view.

How will the new digs fit your relationships and lifestyle?

Having reviewed your finances, you may consider looking beyond the local area or at a different kind of home.

A more distant move could affect the amount of time you’re able to spend with family and friends. It’s important to consider the logistical and emotional challenges, as well as the financial cost of commuting.

In addition to personal relationships, consider the impact on other community connections such as your doctor, dentist, hairdresser/barber and massage therapist.

If you’re moving to a different kind of accommodation, say from a detached home to a townhouse or condo, have you thought about how that will feel? Some people find comfort in close proximity to others, whereas some may find it hard to get used to after living for years with greater privacy. Elevators and underground parking are great conveniences, but to some they’re a personal security concern. Being in the city with a balcony view can be invigorating or intimidating.

In terms of your physical surroundings, how much do you want to hold onto and how much do you want to leave behind? It’s safer and less physically demanding not having to navigate stairs and maintain an outdoor space. But what if gardening is your thing? And with less space to maintain, you also have less room to host holiday family gatherings, or even just have the grandkids for a sleepover. How much does that matter to you?

Taking a test-run?

If things don’t work out with the new place, you may find yourself wanting to move again. Clearly that can be disruptive and inconvenient, and if you become a serial mover the financial strain could mount.

One way to test out a new neighbourhood or housing type is to use a service like Airbnb to live for a couple of weeks (or a year, like a friend I know) in a place near and similar to what you’re considering. Discuss it with your real estate professional and your financial advisor to make sure you have the right information about both the market and yourself before making a more permanent commitment.

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Doug Carroll

Doug Carroll, JD, LLM (Tax), CFP, TEP, is a tax and estate consultant in Toronto.