Downsizing to a smaller home in retirement can be a smart move. However, before signing a lease for that cute little bungalow, make sure it offers some specific design features:
Tiny homes (typically between 100 and 500 sq/ft1) are becoming popular with retirees looking to purchase a less expensive home that is more economical to run and easier to maintain. Approximately two out of five tiny home owners are over age 50.1 If you’re considering a major downsize, Kiplinger.com recently listed “4 Features to Look for in a Tiny Retirement Home” (April 2016):
Design features aside, there are important financial issues to consider when downsizing. U.S. News recently listed “5 Things to Consider Before Buying a Home in Retirement” (May 2016).
If you’re taking out a mortgage, you’ll need to think about how the repayments will affect your retirement cash flow. Lenders are prohibited to refuse someone a mortgage based on their age, but they will use your credit score and sources of income to make a decision. If you get a 30-year mortgage, you’ll likely be paying it off for the majority of your retirement. If you can afford the larger upfront costs, a 10- or 15-year mortgage may be preferable. Remember that moving into a tiny home will reduce your monthly expenditures since maintenance costs should be lower.
If you are accustomed to renting, be aware that home ownership comes with additional, often unexpected expenses, such as repairs and upgrades, property taxes and homeowners insurance, all eating into your retirement budget. It is for this very reason that many retirees choose to rent.
Moving into a tiny home can make a lot of sense in terms of the financial and safety benefits. As well as being more affordable, tiny living is friendlier to the environment, making less of an ecological impact. If you plan and research your move carefully, you could end up living out your retirement in a dream home.