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Deciding to downsize

By Judy Martel · Bankrate.com
Wednesday, May 1, 2013
Posted: 11 am ET

As the housing market recovers, many real estate experts have been expecting masses of baby boomers to begin tapping into their homes' equities by selling and downsizing to  smaller residences. So far, that hasn't happened, perhaps due to the lack of younger buyers who are in a position to purchase the larger homes.

With the majority of Americans older than 55 saying they believe they lack sufficient funds to cover retirement, according to one study, the rising cost of housing is a major consideration. The AARP Public Policy Institute says 29 percent of the middle class older than 50 reported spending more than 30 percent of their income on housing in 2009, up from 20 percent in 2000.

But downsizing doesn't always guarantee savings and a better quality of life. If you move to another state, you'll need to calculate the total cost of living in your new location, as well as state income, sales and property taxes. There will also be fees associated with selling your current home and buying another. If you move to a condo complex, there will likely be monthly homeowners association fees.

Money isn't the only reason people move in anticipation of retirement. Consider the costs associated with your new lifestyle, such as transportation and entertainment. Some experts advise that as a rule of thumb, the savings from downsizing should be at least 25 percent to make it worth it.

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