Look for a sign.
Chances are, your biggest investment is not on Wall Street. It’s on your street.
Yes, I’m talking about your home.
If you’ve seen big increases in the value of a home that may now be too big for you, downsizing could be a way to simplify your lives, reduce expenses, and fund your retirement, all the while staying in an area you know and love.
It’s a reasonable strategy, but it’s far from foolproof. The same economic forces that have increased the price of your current, big home may have also increased the price of your new, smaller home. As result, to access the wealth in your house, you not only have to sell, you also have to move.
It’s a daunting proposition. The good news is that it can work. I’ve seen it with clients. And, as of 12 months ago, I’ve seen it for myself.
There are many aspects to downsizing, but here are three key considerations:
1. The financial advantages are real.
If you’re moving from an area with skyrocketing home prices, your new, lower-cost home can put money in your pocket — money that can be used to fund your retirement dreams, or to invest, or to replenish your cash reserves — a very important element of a stress-free retirement.
2. You may not save as much as you expect on personal expenses.
Even though the cost of living may be lower in your new location, don’t count on reducing your expenses. Case in point — compared to California, Washington State has lower energy costs, but it’s also colder, which can negate the potential savings.
On the other hand, Washington and six other states have no state taxes. Neither do Mexico, Costa Rica and Thailand. That can make a very big difference, though, as this “Bankrate” article makes clear, it isn’t as straight-forward as you might think.
3. Do it sooner than later.
The #1 concern for my clients when considering a move is whether they will be able to make friends. While it’s true that you can’t make old friends, you may be surprised at how friendly people can be. You will even be more surprised at how friendly you can be. This is why I recommend making the move when you are young enough to be outgoing and a little adventurous.
Is downsizing in your future? Before you call a realtor, call a financial planner. A new or updated financial plan is the best way I know to test out the long-term consequences of selling, buying, or staying in place.
I recommend you choose an hourly planner — someone who doesn’t sell any financial products and can be 100% objective about you, your goals and your investments.
No one knows what the future will hold, but with the right plan, and the right planner, you’ll feel confident that you’re moving ahead — whether you move or not.
I look forward to hearing from you.
P.S. Yes, I am living in Bellingham, Washington. No, I am not retired.
It may not be for everyone, but I am successfully working virtually with clients in far-off places, like California. We use online meetings, email, even ancient technologies, like the telephone and US Mail.
Do get in touch. If we can’t work together on a virtual basis, I am happy to recommend planners who are closer to home.