Equity is on the minds of many pre-retirees and retirees today, more specifically: Should I downsize my home in retirement? And if so, when is the right time to do it?

In this week’s Money Wisdom Question Series, Jake Doser, CFP®, CPWA® explains the many factors at play when choosing to downsize or stay put in retirement, and how a solid financial plan can help guide the way.

Why Consider Downsizing

Over the past few years, the housing market has become very competitive, with home values rising significantly. Naturally, many people are thinking about the equity they’re sitting on. This leads to a common question: “If I sold my house, moved into a less expensive place, and cashed out that equity, could I use it to fund my retirement?” While that mindset isn’t inherently bad, it may become an issue if you’re downsizing in square footage but not financially.

For example, if you move from a $400,000 home to another $400,000 home, you’re not actually gaining any financial utility. If the value is the same, your taxes are likely similar and you’re not freeing up any equity.

It’s Not Just About the Money

Downsizing isn’t only a financial decision; it’s also about lifestyle and convenience, especially in retirement. Consider the full picture: Will a new home reduce your tax burden or lower your mortgage payments? Could you save time and money with less maintenance and smaller property upkeep? And perhaps most importantly, will your new home support the lifestyle you envision for your retirement?

Weighing the Trade-Offs

Ultimately, this decision is about balance. If you love your current home, you can afford to stay there, and it fits your lifestyle, staying put may be the best choice. But if you need the equity from your home to maintain your retirement lifestyle, then the question isn’t whether you should downsize, but rather when and how.

It’s important to have this conversation with both your financial planner and your family as part of your larger retirement plan. If these discussions and decisions are something we can assist you with, we’d be happy to help.