Right-size not downsize in retirement

Just over 15 years ago, my godmother made a life-changing decision. While sitting in her four-bedroom home in Aurora, Ont., watching the gardener tend the lawn and waiting for her cleaner to arrive, she decided to downsize.

Her decision was as much emotional as it was practical. Divorced, childless and entering her 60s, my godmother realized that spending cash on the upkeep of a large home was a waste of money. On top of that, she didn’t want the headache of having to maintain a property (she spends just over 40% of her time travelling across North America).

So she put her house up for sale and started the process of downsizing. But rather than buy a smaller home or condo, my godmother chose to move into a rental apartment. This, from a woman who had made a small fortune investing in real estate.

Her reasons were sound: She didn’t have to worry about leaving an inheritance, she didn’t want to bother with seasonal or regular maintenance, and she wanted a place to live that was simple and easy, both in terms of budget and lifestyle. For her, renting an apartment meant she had all the space she needed, in a central, north Toronto location that included parking and regular building maintenance that was well within her budget. Better yet, she could easily absorb annual rent increases, since they were tied to the annual rate of inflation.

I was reminded of my godmother’s decision to downsize, recently, when Babs, a MoneySense reader, wrote asking for any downsizing tips.

Babs isn’t the first reader to ask MoneySense for some downsizing advice, and she won’t be the last. In the next 10 to 15 years the biggest demographic cohort—the baby boomers—will turn 80. With such a large segment of the population facing health and financial concerns, I’m sure they’ll be a lot more questions regarding housing needs and wants.

So I thought some insight into how to determine if you should downsize would be a good idea. I have to admit, though, that the answer isn’t straightforward. The decision to downsize isn’t only about how much you’ll save. As many readers have pointed out: while their primary residence may have appreciated significantly over the last couple of decades, so did the price of smaller homes. So this decision has to take into consideration your lifestyle, as well as your finances. For that reason, I would like you to consider downsizing as a process, not a decision.

As such, I’ve split the process into two segments: one that deals with lifestyle, and the other that deals with finances. This initial blog will tackle the emotional—or lifestyle—side of downsizing. In the next installment, I’ll examine the financial side.

So, in true Socratic-style, I’m going ask a few questions and provide some ideas to consider. The aim is to follow the advice, and answer these questions honestly. Remember: There’s no wrong answer, just what’s right for you.

1.     How do you entertain?
If you like to entertain friends and family, schedule plenty of sleepovers with the grandkids, or you’re booking two or more weekend visits from adult-children, then moving out of your 3 or 4-bedroom family home may not work for you. If, however, the only entertaining you do is coffee dates, holiday meals, and the occasional out-of-town guest, then consider downgrading your home.

That’s because downsizing to a condo or an apartment will force heavy entertainers to modify their plans. For instance, condo buildings will give owners access to party rooms, but you’ll need to schedule the event and, in some buildings, pay a security deposit of $500 or more if you have more than 20 guests. Keep in mind that these party rooms typically only come equipped with a microwave and bar sink. That means any elaborate meals must be carted up and down elevators.

However, as a moderate to light entertainer, or if your entertaining only requires living and dining space (not bedrooms) then you may want to consider downsizing to a smaller home, or settling for a larger condo-apartment or townhome. That’s because the majority of your 3 or 4-bedroom home is just collecting dust bunnies most of the year. By downgrading, you could invest in a new home that’s more suitable to your retired/no kids living at home lifestyle.

2.     How important is your outdoor space?
Outdoor space is why my husband and I bought our current family home. We wanted a place our kids could safely play and a green space we could use to relax. This desire—for a family-friendly outdoor space—isn’t uncommon. Over the last decade, outdoor living has taken on a whole new dimension for North Americans. Real estate porn focuses on creating the ultimate outdoor retreat, while big-box stores advertise deals on everything from six-burner BBQs to weather-resistant sofas (and don’t even get me started on the Spring blitz on playscapes!). But once the kids have grown and moved out, you’ll seriously want to consider whether or not you need such a large yard?

Avid gardeners may be reluctant to give up their large green canvas, but if you find most of your time spent outdoors is on yard-work, then consider moving to a home with a smaller outdoor footprint.

3.     How much do you travel?
If you’re like my godmother and spend 40% to 60% travelling (or living in a place other then your primary residence) then you’ll benefit from downsizing. Not only will a wise downsizing decision help free up more money but it should alleviate stress associated with keeping a Canadian residence.

Downsizing could still be a smart move even if you don’t travel or have a vacation home, but the necessity to move isn’t as great and the decision should be made based on other lifestyle choices.

4.     How much stuff do you really need?
Yes, I’ll say it: it’s fashionable to get rid of 30 years of clutter. Aside from being fashionable, there’s an even bigger reason to de-clutter: stress. According to Dr. Sherrie Bourg Carter, clutter is a significant source of stress in our lives. In her Psychology Today article, she says, “clutter bombards our mind with excessive stimuli, distracts us, and makes it more difficult to relax, both physically and mentally.”

So with this in mind, you need to ask yourself: What do I really need? Start by going from room to room and asking yourself: When was the last time I actually used this room for its intended purpose. If you find you have entire rooms, such as the basement den or the spare bedroom, that rarely see anything more substantial then a dust-bunny, then you’ll need to declutter. Even if this exercise shows you that every room is being used majority of the time, you can still benefit from decluttering. As Bourg Carter says, “clutter is one of the easiest life stressors to fix.”

For tips on how to tackle clutter go to my declutter blog.

If you can honestly answer the above four questions, you should have a clear idea as to whether or not you would emotionally benefit from downsizing. If it’s still unclear, consider these rules of thumb:

→ You would benefit from downsizing: If you only use 40% to 50% of your home 80% to 90% of the time. (To put this in perspective: A retired couple, with only an occasional overnight visitor, needs no more than two bedrooms. Increase this to a three-bedroom if you want a dedicated office or a reading room that’s separate from the den.)

→ You would benefit from downsizing: If you spend the bulk of your outside time weeding, completing lawn care, and performing outside maintenance.

→ You would benefit from downsizing: If you spend a large portion of your year living in a vacation home (not your primary residence) or travelling.

→ If your home is where the family gathers for special events, holidays and celebrations: You may not benefit from downsizing.

→ If you’re an avid gardener, or you like to spend long hours in the garage tinkering with projects: You may not benefit from downsizing.

→ If you require large amounts of storage or work space, say for a taxonomy hobby, your ATVs, or for a butterfly collection, or because you’ve taken up silver-smithing: You may not benefit from downsizing.

For my godmother, the decision to move into an apartment was, quite literally, magical. While she did have to declutter, she found the process liberating—a chance to purge the items that were being held for little more than sentimental reasons. She still entertains—she’s known for a beef Stroganov—and regularly has guests visit and stay with her. While there’s been a few hiccups (such as a new neighbour with a loud dog), she’s managed to weather any minor disadvantages and, in the end, she’s come out ahead both emotionally and financially.

Stay tuned for the financial side of downsizing.