The Hidden Costs of Downsizing

Get Ready to Pay 8% to 10% of the Price of the New Home or Condo

One of the things that retirees commonly do. You downsize, right? You don't need that big house with four or five bedrooms because the kids are grown. They're living on their own. And it's just the two of you. You've got a big house and a big yard that requires a lot of maintenance, repairs and upkeep and taxes. The heck with that. 

In retirement, people downsize. They go to a smaller property, maybe a condo. Let's eliminate all the extraneous costs and all the hassles. You need to make sure, though, that when you're downsizing, you are not overlooking the closing costs. You need to recognize that moving out of your house into another home could cost you 8% to 10% of the price of the new home. And if you're going to move to a 55 plus community, you might incur monthly fees which are not tax deductible, by the way. Those fees can be as much as $1,000 a month depending on where you live.

You need to recognize that the transition has itself a set of expenses. You're going to pay a real estate agent for the new home. You're going to hire a moving company. You're going to end up buying new furniture or making new arrangements with new doctors, new lawyers, new dentists, new banks. With your new location, you're going to incur expenses associated with your transition. Don't ignore them because they may otherwise shock you, causing you to go into credit card debt because you didn't plan appropriately. Make sure you talk to a good financial advisor if you're planning on downsizing.