For some people, the idea of selling up and moving to a quiet little place in the country – or an accessible apartment in the city! – is the dream.

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For others, it’s an option that they’ve never looked at in much detail.

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Wherever you are on that spectrum, we’ve written this guide to bring some clarity to the whole process. By the end of this article, you’ll know all about the pros and cons of downsizing, the mistakes and risks to watch out for and what some of the alternatives are if downsizing doesn’t fit your plans.

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Why downsizing after retirement might be a good idea

If you’re trying to work out your next steps, you need to start with as much information as you can get.

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Canadians choose to downsize for lots of different reasons, but we’ve highlighted some of the most common ones below.

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Financial benefits

The decision to move home will always have a financial element to it. Our homes are a big part of our net worth and moving is one of the largest transactions we’ll ever make.

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While you might have climbed the housing ladder in the past, retirement is a good time to step down a few rungs – and keep the difference.

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For some retirees in Canada, downsizing could earn them a six figures bonus to boost their retirement.

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Simplifying lifestyle

You needed a five-bed house to raise a happy (and not stir crazy) family. Do you really need all that space now? Along with all the cleaning time and wasted heating that it requires?

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Downsizing can free up a lot of mental space and energy. You don’t have to go to a one-bedroom shoebox apartment, moving to somewhere with one spare bedroom instead of four is no bad thing. 

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Emotional readiness

Starting retirement is a life landmark, a big shift that can stir up all kinds of feelings.

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For some folks, downsizing their home is like a threshold for this new life phase. Our habits and mindsets are often connected to our environment. It might be that, for your retirement to really get started, you need to change your space.

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Freedom of opportunity

Retirement is a time of opportunity, but some of those are only accessible if you downsize. That could be because of the financial stability a smaller home offers or by freeing up your time to pursue new interests.

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You’ve got no commute to make or school drop-offs to do. The world is a big place. Heck, Canada is a big place. Where you go next is entirely up to you.

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Access to somewhere nicer

You might not be able to afford a like-for-like house in a nicer location, but if your bed and bath requirements are shrinking, then your access to the market is growing.

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In your 30s and 40s, you might have been looking to maximize the amount of house you could buy. In retirement, you might prefer to maximize the location you can buy.

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How to evaluate your current living situation before downsizing

Moving house is always a big decision, no matter the type of move you’re hoping to make.

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To avoid any regrets or mistakes, you might want to take the time to consider the following criteria and analyze your situation accordingly.

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Analysing your current space needs

It’s easy to accumulate possessions. If you look at your home now, how much of it are you using to store items – and how many of those items do you really want to keep?

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This often includes your kids’ stuff. It might be time to ask some tough questions about those old stuffed animals and macaroni artworks.

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Once you know what your realistic space needs are, you can work out the space you can downsize into.

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Maintenance and upkeep demands

Keeping your home clean, tidy and functioning can take up a lot of time. And a lot of money, too, if you choose to hire in help.

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Downsizing should mean less maintenance and upkeep, depending on the property you buy. If you move to a house that needs a major remodel, you’re in for a lot more work before it calms down.

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Financial considerations of your current home

Houses have a magic ability: they continually find new ways to cost us money.

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Even if you haven’t got an expensive repair on the horizon, the day-to-day costs of keeping your house in good order can stack up. Calculating what you spend in an average year on running costs will give you a baseline to work out costs and savings if you downsize.

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Community and social connections

If you’ve put down roots where you live, they tend to tangle up with other people.

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Unless you can downsize without changing your location, you’ll need to weigh up how it would feel to lose proximity to your community.

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Safety and accessibility

When it comes to safety and accessibility, you need to consider your home and its wider environment.

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You can control whether your home has steep and narrow steps that get slippery in winter. You can’t control whether burglaries have increased 20% in the last five years.

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You need to live somewhere that has a safe outer environment that can support you if you become vulnerable. You also need to live somewhere that has a safe inner environment, that can adapt if your physical needs change.

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Benefits of downsizing after retirement

If you’re a little on the fence about downsizing or just starting to think about the idea, you might like to know about the benefits that can come from it.

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We’ll never claim that it’s faultless or problem-free, but it’s a popular choice for a reason – or several reasons, as you’ll see.

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Financial benefits

One of the strongest reasons to consider downsizing is the impact it can have on your finances.

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Using a generic example: selling a $500,000 home and buying a smaller place for $350,000 could land you a six-figure windfall after all costs and fees.

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Then, there’s the ongoing costs like general maintenance and HVAC. In general, a smaller property is cheaper to live in.

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Simplified lifestyle

As well as being easier to maintain, your downsized home might bring you some other lifestyle benefits.

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You could enjoy novelties like being able to walk to your grocery store or having access to a lake or forest. Downsizing can give you access to a new and exciting lifestyle – and all the time and space you need to embrace it.

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Enhanced mobility and accessibility

You might still feel a long way off ‘old age’, but as you get further into your retirement, your physical needs might change. Even something totally unexpected could happen.

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In choosing to downsize, you can also choose to buy somewhere that’s suitable for restricted access (e.g. a bungalow) or could be adapted in the future. It could prevent you having to move again when you’re another 20 years older. That counts for a lot.

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Emotional and psychological wellbeing

There are a lot of ‘soft’ benefits to the decision to downsize, beyond the cold hard numbers of money and time saved.

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• Living with less stress (e.g. less housework or being mortgage-free)
• Access to nature (if you prioritize that)
• Closeness to family (if moving closer to them)
• Sense of security in the future
• Being able to practice hobbies
• Feeling like retirement has really started

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Flexibility and freedom

One of the defining features of retirement is just how much freedom and flexibility you uncover.

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You’re free from so many of the things that kept you in a place – now you get to choose where to live based solely and entirely on what you want. It’s an amazing feeling and can have an enormous influence on quality of life.

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Why downsizing in retirement might be a terrible idea

There are two sides to consider. We don’t just want to tell you about the good stuff – downsizing is good for lots of people and it’s terrible for others.

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You need to consider the cons as well as the pros if you want to make a good choice.

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Practical and logistical issues

Moving isn’t exactly a relaxing way to spend your time. You have to come face-to-face with all your possessions and work out what to do with them all.

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If you’re downsizing, you’re going to need to cut back on at least some of your belongings. Whatever fits into 1,800 sq.ft. simply won’t fit into 900 sq.ft. Some people find this process freeing, others agonizing.

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Impact on lifestyle and hobbies

If you’ve got equipment-heavy hobbies, you’re going to have to think carefully about how all of that fits into a smaller version of your lifestyle.

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Do you need all of those fishing rods and can you bring yourself to get rid of them all?

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Emotional and psychological challenges

The emotional impact of moving needs serious consideration. Moving away from your neighbors, community and network is a big deal. You can make new connections in your new home area, but you can’t replace the old ones.

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The same is true for your family. If being nearby matters to you and you’re moving further away, downsizing could create some uncomfortable friction.

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The risks of downsizing after retirement

Even if you think downsizing is the perfect option for you, there are risks to consider and challenges you might end up facing.

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You might not encounter any of these issues, but they do come up for some Canadians who choose to downsize in retirement.

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Financial risks

Houses are expensive. The process of buying and selling a house is expensive in its own right. You need to have a strong handle on the costs, variables and risks involved in this process. Key considerations might be:

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• If you have to take on a new mortgage, its affordability and the terms offered
• Fluctuating valuations for your old and new properties
• Legal fees and the usual risks of buying a house

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Impact on family dynamics

It doesn’t matter whether you’re moving closer to or further from family, there’s going to be some disruption and discomfort.

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Whether you expect it to feel better or worse, these things have a funny way of surprising us. You can’t predict what relocating will do to your closest relationships

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Loss of space and comfort

We are creatures of habit and we get used to having our space in a certain way. Moving home and adapting to a different environment can be challenging – even more so when you’re reducing your space.

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You need to be sure that you can adjust your lifestyle and way of living to a smaller space.

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Community and social disruption

Leaving all the friends and connections you’ve made can cause a lot of grief. If you downsize to a new area, you’re saying goodbye to everybody from your closest friends in the community to your mail carrier.

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In some ways, a clean social slate is exciting. It’s also quite daunting and can even be exhausting. You have to be prepared for the social upheaval that can come with downsizing, otherwise you might end up feeling isolated in your new home.

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Health and safety risks

There are lots of steps in the buying process that minimize risks, but it’s never completely risk-free. From the start of the process to later life challenges, there are health and safety risks you should consider:

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• The stress of selling, buying and moving house
• Adapting to a different climate (if you move somewhere very different)
• Condition of house (from mold and dampness to overall structural integrity)
• Accessibility if your physical needs change (e.g. steep stairs or narrow doorways)

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Potential alternatives to downsizing after retirement

Downsizing isn’t your only option in retirement, especially if your primary motivation is financial. There are plenty of other approaches you can take to make your retirement more comfortable, affordable and exciting.

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Reverse mortgages 

Reverse mortgages are what we’re all about at Bloom. We can offer you a loan of up to 55% of your home equity – without you having to move, exchange your equity, or make any repayments while you’re in situ.

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Our reverse mortgages are only repayable after you move out of your home. And with our Home Equity Guarantee, you’ll never have to repay more than the fair market value of your home.

It’s the perfect way to unlock your home equity and turn it into cash, without making any sacrifices here and now.

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Find out more about our reverse  mortgages or complete our four-question survey to get a no-obligation estimate today.

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Aging in place

There’s nothing to stop you from staying where you are and living a very happy and fulfilled retirement. Staying in a familiar setting, with your community around you and no added disruption, can be just what’s needed in some scenarios.

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Home is where the heart is. That’s worth a lot.

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Retirement communities and independent living facilities

Instead of buying a smaller property, you might consider a retirement community.

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These are purpose-built to suit retirees, with favourable terms and homes that are equipped to suit you throughout your retirement. Their suitability depends on your lifestyle and what you’re hoping to do in retirement, but these communities can be a great choice.

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Taking equity from your home

Apart from reverse mortgages, there are other ways to take equity out of your home without selling and downsizing.

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You could consider a home equity line of credit, a refinance or a home equity loan. We’ve written a guide explaining six ways Canadians can unlock home equity, if you want to do some more research into the alternatives.

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Common mistakes people make when downsizing in retirement

You might now have a better idea of the costs, benefits and opportunities that come with downsizing, but it’ll help to know some common mistakes so you can try to avoid them.

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Overlooking legal and logistical details

You’ll need to be sure that your current and future homes don’t have any nasty surprises.

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This is especially true if you have an outstanding mortgage or will be getting a new mortgage on your next home. If you’re buying a condo or an apartment, you’ll need to do your research into the building’s management 

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Financial mistakes

Downsizing can feel a bit like financial juggling – you’re relying on lots of different parties and the numbers can change and move if we aren’t paying full attention.

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You can make a lot of financial commitments before realising you’ve made a mistake or want to take a different path.

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If your budget is tight, you can’t afford to make any big mistakes.

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Underestimating what a new home will cost you

The full cost of downsizing can be quite surprising. Adding up everything from legal fees to movers to buying a new fridge because your old one doesn’t fit in the new kitchen, it can be eye-watering.

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You need to have a healthy budget prepared, with some wiggle room in it to account for unexpected expenses.

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Overestimating what your current home is worth

If you’re considering downsizing, pretty much the first thing you need to do is get a valuation on your current home.

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Everything else hinges on your valuation, as it sets your budget for downsizing and releasing equity.

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Without an accurate valuation, you could find the perfect home to downsize to, only to find a $50,000 gap between your budget and your sale price.

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Ignoring the tax implications

Nobody wants to talk about the ‘T’ word, but it’s an unavoidable part of selling and buying houses.

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You can expect land transfer tax, but should also watch out for:

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• Capital gains: if you’re selling a property that isn’t your primary residence, you’ll owe capital gains tax on 50% of the sale value.
• Property flipping: if you’ve owned your current home for fewer than 365 days, your proceeds are considered business income.
• New homes: the tax situation with newly built houses is complicated. We recommend checking the CRA’s guide to GST/HST New Housing Rebate.
• Remaining property taxes: you’ll need to check your municipality’s rules about outstanding balances and transference of property taxes.

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One of several great options

Downsizing is a big decision, but it’s a popular part of many Canadians’ retirement plans.

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The whole process requires planning and consideration. There are some serious practical details to work out, as well as the more complex emotional parts of the decision.

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If you feel like downsizing is the right move for you, then get started with your calculations! If you’re feeling doubtful, you should consider other ways of releasing equity from your home to fund your retirement.

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A reverse mortgage could be just the answer you’re looking for.

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Learn more here.

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