Key takeaways

  • Downsizing involves moving out of your current home to a smaller, ideally less expensive property.
  • The most common reasons to downsize include saving money, needing less space and wanting to be closer to family or friends.
  • While anyone can choose to downsize at any stage in life, the decision often boils down to your retirement timeline.
  • If you plan to downsize to save money, compare all the costs of your current home, including the mortgage, property taxes, utilities and maintenance, with the cost of moving to and paying for a new home.
  • Ahead of downsizing, consider how you'll pare down your belongings. If you have a lot to sort through, enlist the help of family, friends or a professional organizer.

What is downsizing?

Downsizing is the process of moving from a larger home to a smaller one, often one that costs less in upkeep. This might mean moving from a detached, single-family property to a condo or townhome, or to an assisted living facility or retirement community. For some, it might involve moving into an accessory dwelling unit, or ADU, on a family member or friend’s property.

Regardless of where you move to, downsizing involves scaling back your possessions, including furniture or your car. This step in the process is often the most difficult, especially if you’ve lived in your current home for a long time. As such, many downsizers turn to professional help to get ready for the move.

Aside from downsizing, some homeowners opt for the process of “rightsizing,” or moving to a home that isn’t necessarily smaller or less expensive, but one that’ll best fit their needs in the future.

Common reasons to downsize

  • Economic necessity – Many older adults face higher costs like medical expenses or rising home insurance premiums and utility costs. For some, it can be more financially practical to sell their current home and move into a more affordable one.
  • Relocating for retirement – If you intend to retire out of state or in your current city, downsizing in your new location could be part of those plans.
  • Convenience – You’re not alone if you’re tired of doing all the housework and maintenance for a larger home. Many downsizers switch to smaller homes where the upkeep is less expensive and taxing.
  • Health concerns – Many seniors downsize to a home where at-home care is more widely available and there are fewer everyday obstacles, such as stairs or other mobility constraints. The quality of and proximity to hospitals could also be motivators, along with access to public transportation, especially if driving has become an issue.
  • Seller’s market – Some downsizers simply seek to take advantage of a seller’s market. If you’ve been living in your current home for a while and it’s a seller’s market, you might be able to walk away with a good chunk of change, enabling you to buy a smaller home, sometimes outright with all cash.

Is downsizing your home now a good idea?

If you have the option, it might make more sense to hold off on downsizing. Although home prices have cooled somewhat, with limited listings, you could still have a hard time finding an affordable property.

Mortgage rates are also much higher now, so if you’re planning to get a loan, you’ll likely pay as much or more for it — not something you want if your goal is to save money.

“The financial benefit of downsizing in retirement typically results when going from a large mortgage to a small mortgage, or from a small mortgage to no mortgage at all,” says Greg McBride, chief financial analyst for Bankrate. “If you have substantial equity in your existing home, downsizing can mean taking that equity when the home is sold and using it to pay cash or make a large down payment on a lower-priced home, reducing your monthly living expenses.”

That said, some homeowners simply can’t avoid downsizing or a costlier mortgage. If you’re in this camp, it’s worth talking to a financial advisor to plan for how you’ll afford the move and the new loan.

Downsizing and retirement data and statistics

  • For retirees, the most common motivators for moving to a new home include living independently and the cost and ease of maintaining the home, according to a 2021 AARP survey.
  • The top five best states for retirement are Florida, Georgia, Michigan, Ohio and Missouri, according to a 2022 Bankrate report. The worst states are Alaska, Maine, California, New Mexico and Montana.
  • Fifty-five percent of respondents to a 2023 Bankrate survey believe they’re behind when it comes to saving for retirement. Twenty-one percent regret not saving for retirement early enough.

What to consider when downsizing

What are you paying now? What will you pay for a downsized home?

Make a list of all the expenses associated with your current home, plus anything else you pay related to housing on a monthly basis. Compare those figures to what you expect to pay in the same categories in your next place.

Are homeowners associations common in your target neighborhoods? If you have the community narrowed down already, find out the monthly fees and include those in your estimates. (While you’re at it, review all of the HOA’s rules — there could be deal-breakers, such as limits on the number of guests or a ban on renting out the property for part of the year.)

What’s your current financial situation?

Here are key factors to consider:

If you still expect to take out a mortgage when you move, you’ll want to figure out the monthly payment for your new home — Bankate’s mortgage calculator can help you crunch the numbers. Map out different scenarios based on your expected longevity and worst-case scenarios, as this affects how much you’ll have to live on.

What will it cost to sell your home and buy another?

As the seller, you’ll need to pay for expenses like home repairs, your Realtor’s commission and other closing costs, including transfer taxes in some states. You’ll then need to turn around and pay buyer’s closing costs, such as attorney fees and title insurance, when you purchase your new home.

To be sure, homes are also much more expensive today. The smaller home you hope to save money with might cost more now than your current home.

“It is easy to downsize in terms of space, but downsizing in cost may not be as simple,” says McBride. “If you’ve been in your current home a long time, the smaller place you look to downsize to may be selling for more than you’d originally purchased your existing home. You don’t want to go from a small mortgage to a larger one or from no mortgage to now having a monthly mortgage payment.”

Downsizing tips

  • If you’re moving to a new location, do your homework. If you plan to downsize out of state, take a trip or two to visit the new location and learn what it’s like to live there. Consider its cost of living for expenses like healthcare, utilities and groceries, as well as quality of life factors like weather and opportunities for recreational activities. If you plan to move to a retirement community, talk to neighbors to get a sense of what they like or dislike about the area.
  • Get organized. It’s never too early to start clearing out clutter and packing boxes. Decide whether to keep, donate, sell or toss items. If you find this overwhelming, it might help to have a trusted family member or friend by your side as you sort through your home.
  • Start living on less now. If possible, begin cutting down your spending ahead of downsizing. This can make it easier to make the transition to lower-cost living when you move.

FAQ about downsizing in retirement

  • If you have equity in your current home and want to significantly lower your expenses in retirement, it might make sense to pay for your new home with cash (the proceeds of the sale of your home). That way, you won’t have a mortgage payment — although you’ll still need to pay for home insurance, property taxes and maintenance.

    Another benefit to paying cash: You could have a leg up on other buyers. This might make the difference between getting the home you want as you age, versus settling for a home because you were outbid on all the others.
  • Many seniors want to live at home for as long as possible, with a plan to retrofit the home so they can age in place. Others like the idea of a retirement community, which often comes with opportunities for recreation and social connections. Still, others might need help with daily tasks and they (or their loved ones) prefer the peace of mind of assisted living.