Ep. 261 – Downsizing In Retirement


In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Nick discuss downsizing in retirement. Scenarios such as lifestyle preferences and financial needs are what make downsizing a consideration for retirees.

Listen in to learn how we use practical scenarios to help clients visualize the potential outcomes of downsizing decisions. You will also gain insights into the importance of assessing the impact of downsizing on your retirement plan, whether it’s for convenience or financial optimization.

In this episode, find out:

  • Some real-life scenarios where you might want to downsize in retirement.
  • The challenges and benefits of downsizing like monetary implications and lifestyle enhancements.
  • How we strategize to incorporate downsizing into a retirement plan and open up flexibility.
  • The importance of early assessment and strategic planning to make informed downsizing decisions.
  • How we simulate real-life scenarios to give you an insight into the consequences of downsizing in the future.

Tweetable Quotes:

  • “Downsizing may be an even exchange, but there are a lot of benefits that you pick when you make the move that you weren’t looking for 10 to 20 years ago, but now it’s something important.”– Nick Hymanson.
  • “It gives more flexibility into your retirement plan if you have additional cash flow and funds through your retirement.”– Nick Hymanson.


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:  Welcome to Secure Your Retirement podcast. Murs and I today are excited to have Nick Hymanson from our office on the podcast with us today. Just to give you a little bit of what Nick’s role and why we brought him on for this particular visit. Nick is a certified financial planner with our team, and he works a lot with our clients, helping them to think through, strategize and implement their overall retirement plan to make sure that they are doing everything that they need to do to be able to be happy in retirement. But also there’s sometimes adjustments that come about because of that. And one of the things that we try to do on this podcast is to really give you real life stories, real life situations. So we are constantly talking about, “Hey, if we’re running into this quite a bit, let’s come on the podcast, talk about it and see how we might be able to apply it.” 


  So one of the conversations that we were having with Nick, the idea of downsizing came up. Now, we know there’s a few different reasons why a person would, what we call downsize. Downsize could simply be that we’re trying to get into a less expensive home. That might be one idea. The other one though, which is more common is trying to downsize and say, “Well, I need to get into something that’s better for me to get around.” So can you give us your perspective, Nick, of what you run into? Maybe first of all, give us a couple of the real life scenarios, high level, and then maybe we could dive into what that looks like. 


Nick Hymanson:  Yeah. I think the first scenario that I’ve run into and had a lot of conversations on is really the one around aging in retirement. So for example, you’ve been in that same house for 30 to 40 years and you had kids in your house or whatever it may have been, and the house was set up for where you were 20 to 30 years ago, and not really where you want to be in 10 to 20 years. So really the first conversation is around how do I move or do I have the options here of moving into a house with a master bedroom on the first floor, somewhere where it’s easy to get around, much more manageable than the house you are currently living in, which was really set up for a much bigger family in a whole different scenario. So that has been a very common conversation that I’ve having with clients. 


  And then the second scenario is maybe we’re looking at more of a cash flow type scenario where you had this great house and it’s had a mortgage on it for quite some time, and now we’re looking to reduce that mortgage and the strain it may have on your financial plan. So how do we do that and maintain a good living scenario for the next 10, 20 years so that you feel very comfortable in retirement from a cashflow perspective, but also in the house that you’re living in throughout your retirement as well? 


Murs Tariq:  Yeah. So let’s talk about that first one because I think that one is rather common is, hey, we’ve been in this house for such a long time and we know that we want to age in place is the term right? We want to stay in this house as long as possible, but we know it’s just not conducive of it. There’s too many stairs or maybe it’s too big, too much maintenance, and we want to downsize to make our lives a little bit simpler so that we don’t have to worry about the yard or we don’t have to worry about going upstairs to go to bed or we don’t have to worry about cleaning seven bathrooms when we only use two things like that. 


  The issue that we run into in this area, and if you’re listening and you live in the Raleigh, Cary, Durham area is well, downsizing has become a little bit difficult from a monetary perspective. All values have gone up. So a lot of the conversations we’re having in these meetings as well, does it make sense to downsize? And when we look at it from a financial planning perspective, even if it’s an even exchange, dollar for dollar, it’s not costing us anything. And Nick, you can chime in, but we’ll run these in the plans and what do we see even if it’s like a even exchange, what is someone picking up that we think makes a lot of sense? 


Nick Hymanson:  Yeah. Even for that scenario where it’s an even exchange or close to an even exchange, you pick up a lot of resources that you just didn’t have. So we have a lot of clients who are interested in talking about 55 and up communities. So you’ve heard of Dell Web and maybe some others, and they’re building all around this area and many other areas across the country. So we have that conversation a lot of, well, you lose the large piece of land and maybe you lose some square footage in the exchange from where you are now to where you could be, but you pick up a lot of times maintenance on the yard, you pick up the peace of mind going around your house and not worrying about how am I going to get upstairs and not worrying about the extra cost of maybe having to put in an elevator or having to go up and down the stairs every night. 


  So there’s things there in just living on a daily basis. And there’s also a lot of other things that some other communities offer. And related to landscaping and things on the outdoors as well, not even talking about all the other benefits that communities like that have. So it may be an even exchange, but there are a lot of benefits that you pick up when you make the move that maybe you weren’t looking for 10 to 20 years ago, but now it’s something that is really important. 


Radon Stancil:  Yeah. So before we get into a lot of detail about how we help people plan for that, let’s just go ahead and talk about the other scenario so we understand it and then we’ll come back and maybe talk about how do we show people the movement of money and all that good stuff. But for right now, let’s talk about the other scenario where, and I think just in our experience, what we’ll have is we’ll have somebody who maybe they’ve got a house that… Murs talked about it… highly appreciated, still owes maybe some money on it, but what the idea is hey, if I sell this house and I get out of it what I want, can I go find another place that maybe I just end up not having another mortgage or I reduce the mortgage considerably? That’s another scenario. And then in the same token, maybe I go to a place that’s more manageable back to the first scenario that we just talked about. So can you give us maybe a couple of examples around that and what maybe the situations could be that a person might be finding themselves in? 


Nick Hymanson:  Yeah. So that one scenario we’ve had a lot of conversations on as well. So in that a lot of times we see someone’s had a mortgage for a long period of time, and that was something that was okay when they first retired, but now if they’re 10, 15 years into retirement, that strain on cash flow, if you have that one to $3,000 mortgage, really makes a big difference. So medical costs continue to go up through retirement. Cost of living adjustments, we’ll keep up with some of that, but not all of that. So we’re always trying to analyze and optimize the plans and make sure that your cash flow and the assets that you have are going to last and also keep up with inflation and groceries and medical costs and all those things. 


  So when we’re looking at a plan specifically, we are looking at how much the mortgage costs, what it takes to potentially look at other options to reducing the mortgage like Radon said, or selling the house and moving into a house where you don’t have that mortgage anymore. So you don’t have that stress of knowing that you have to pay that monthly fee or that monthly payment. So that’s kind of the conversation that we have. And then we look at it from both sides. So what if we reduce the mortgage by a little bit and what does that do to the plan? Maybe that results in a few $100,000 extra by the later years in retirement. So sometimes that helps out a lot. Or if we get rid of the mortgage altogether, that also helps out a tremendous amount because then you have maybe more money for travel or more money for extra or additional expenses that you may not have known or some things you just never know might come up, like medical expenses as well. So it just gives more flexibility into the additional cash flow and funds through your retirement. 


Murs Tariq:  Yeah. A scenario that comes to my mind is a client that’s been with us for quite some time, and while they were working, they could afford the mortgage. The house was rather large, the kids were still figuring their lives out. So some of the kids were still in the house. So all along the way, the planning process was at some point in the future, we are going to have to figure out a way to make this mortgage or this house more efficient. One, it’s too big for you, and the other is that it’s a little expensive on the monthly payment as far as a percentage of what our cash loan needs are. 


  So we had talked about that from the beginning. It wasn’t a surprise to them 10 years later when I said, “Hey guys. We talked about this. We’re at that point now and we want to stay ahead of this. We’re at that point now that it makes sense to start considering this downsize that we’ve been talking about for a while.” So a lot of times if we plan properly at the beginning, we’re able to plan it out because a house that they grew in, they grew their family in, so it’s not an easy thing. They wanted to hold onto it as long as possible, but they’re also very realistic about the ability to hold onto it. So the downsizing process came into play. Other conversations we have can be around, well, I like this idea of CCRC’s. What about we sell our entire house and then we move into this continuous care retirement community? Those are conversations that we have with clients all the time too. 


  In general, Nick though, what do these in our financial plan strategy meetings because we’ve talked about, well, here’s one type of scenario, here’s the other type of scenario. In both cases, we’re looking to either do something out of convenience, so go back to that one that’s like, well, we’re not saving any money, but we’re downsizing. We’re cutting our house in half so that our lives going to be a lot simpler. To me, that’s convenience. And then the other scenario is we’re doing it out of financial need. We need to cut the mortgage. We want to open up flexibility. We want to make our cash flow better. In both scenarios though, how do we actually do this from a numeric perspective in our strategy meetings? 


Nick Hymanson:  Yeah. So in the meetings, of course we’ll go through the software and make adjustments so that you can see exactly how these changes would result throughout your retirement. So we look at, let’s say the target date is five years from now. So five years from now, we can actually simulate what that may look like. If you were to sell your house at whatever price we think it may be worth in five years, the taxes or the tax consequences of selling your house for a gain. And then also what it would look like if you were to use some of those funds to buy into a CCRC, and that’s multiple scenarios that we run through or just another house that is better for your scenario. We go through all of that, and let’s say we sell the house in five years, we can simulate you paying capital gains taxes on that, if there are any. 


  And then we can also simulate using those funds to buy into a new house and what that new scenario would look like for the rest of retirement. So it gives a really, really good insight into if you were to make that decision, what it would look like, what are the effects it would have, and really the consequences from your cash flow on a daily basis. So it is a big change, but it’s also something that could be a huge benefit if you were to make that change. So really, in all of those meetings, we’re going through the scenarios and answering any questions showing you exactly what that would look like. 


Radon Stancil:  Yeah. So really what we’ve got very likely as you listen to this is we’ve got maybe some folks that are listening to this that are clients already. Maybe you’re not a client and you’re thinking, “I’d like to be able to see what this would look like.” And the thing is, we have folks all the time that well in advance of making a decision like this, they start looking at it. So this might be something that they’re saying, “Hey, in five years I want to think about this.” And we run those plans. Nick is able to help the person say, “Hey, if in five years you pay the house off or you sell the house, what would that look like?” And you see all those cash flows. It is extremely beneficial as you think it through. It’s a confidence builder. So we see it all the time where a person goes, “Okay. I understand what I’m going to do,” and there’s all kinds of things we could do. 


  We have folks that maybe have two homes and they’re thinking, “I want to keep both homes right now, but I’m probably going to sell one of those homes and take those proceeds and do something with that in 5 or 10 years.” We can illustrate all of that for you within the financial planning software that we use. So if you’re listening to this and you’re thinking, “Hey. There is something I want to look at,” all you need to do is go to our website, go to the top right-hand corner, so it’s pomwealth.net, top right-hand corner, click on the schedule call button, and you’re going to see our calendar come up and we’ll hop on a quick call. We’ll assess the situation, and then we can get a visit set up where we can actually show you your specific illustration. 


  Thank you very much, Nick. We appreciated you hopping on here with us, and we hope this has been a benefit to everyone listening. Have a great week. We’ll talk to you again next Monday.