Should You Downsize Your Home in Retirement?
Your home is more than just a house.
It’s where you started your life with your spouse, raised your family, hosted holiday parties, played catch, planted a garden, and spent evenings on the porch watching the sunset.
And, perhaps most recently, it’s where you celebrated your retirement—or you plan to enjoy retirement there.
If you’ve been asking, “Should you downsize your home in retirement?” this guide frames the decision in both numbers and quality-of-life terms.
That’s why deciding where you’re going to live now is about more than just money. It’s a question of how you want to spend your next chapter and who you would like nearby.
Let’s look at ways downsizing might improve your Return on Your Life (ROL) in retirement, as well as reasons you might be better off staying put.
The Financial Case for Downsizing
Your home is one of your most significant financial assets. If you have other retirement goals that are more important to you than aging in place, selling might allow you to:
- Boost Your Nest Egg: Above-average mortgage rates have dominated the housing conversation lately, but housing is local, and supply and demand ultimately drive sales prices. If your home has appreciated, market conditions might further boost its value. And if you sell your home during a year when you’re earning low taxable income, you might qualify for a lower long-term capital gains rate as well. Tax note: If eligible, you can exclude up to $250,000 (single)/$500,000 (married filing jointly) of gain if you meet the ownership and use tests (generally two of the last five years for both ownership and use) on the sale of your home. Depreciation recapture (e.g., home office or rental), state taxes, and net investment income tax (NIIT) may still apply. (See also: The Hidden Tax Consequences of Selling Your Home, as you will also want to consider tax consequences.
- Reduce Monthly Expenses: A smaller home often means smaller utility bills. Renting eliminates the need for separate property taxes and homeowners insurance bills. Those costs get baked into rent, and you’ll likely carry renters insurance. Net savings depend on local rents, HOA/condo fees, insurance, and utilities.
- Cut Maintenance Costs: Less grass to mow, fewer rooms to clean, and fewer household repairs mean lower costs and a shorter to-do list. These costs could go down even further if you decide to rent.
Widow(er) note: If your spouse died recently, you may still qualify for the $500,000 home-sale exclusion for up to two years after the date of death and before remarriage. A step-up in basis at death—sometimes on the full value in community-property states—may also reduce any taxable gain. In non-community-property states, the step-up is often partial rather than complete. Consider a date-of-death appraisal to document any basis step-up. (Talk with your tax pro about depreciation recapture and NIIT.)
The Lifestyle Benefits of Downsizing
Your house was the perfect home when you were raising your kids and working. But your life has changed now. Downsizing might be a better fit for your retirement years, especially if you want to:
- Move Closer to Friends and Family: Have your loved ones moved out of the area? Why only see your loved ones on holidays and special occasions? Make your loved ones an essential part of your weekly retirement routine, especially if new grandchildren are in the picture.
- Spare Yourself Some Aches and Pains: Do you really want to spend your retirement years marching up and down the stairs, pulling weeds, and cleaning empty rooms?
- Make a Fresh Start: Your home is full of memories. But it’s also full of stuff. Pair downsizing with decluttering, and you’ll start retirement with a blank slate and a lot more closet space.
- Live Where Daily Life Is Easier: Improved walkability, healthcare access, and a built-in community can matter more than square footage. A single-level/accessible layout can beat pure square footage downsizing, too.
The Case for Aging in Place
Downsizing might look good on your balance sheet, but there are some other “costs” to consider as well, such as:
- The Emotional Toll: The time, money, and emotions that you’ve invested in your home can make moving out very difficult. If you’re already navigating the transition to retirement and finding it challenging, downsizing might feel like yet another sad ending, making it even harder to get excited about a new chapter.
- Losing Your Social Network: If you’re moving away from friends, family, and neighbors, you might struggle to make new connections. And if the only person you know in your new town is your spouse, you might put unrealistic expectations on the time you spend together.
- A Minor Windfall: Your house might not sell for what you’re hoping for. Commissions, closing costs, moving expenses, and furnishing your new home will all eat into your proceeds. And given current mortgage rates, your smaller home might come with a higher monthly payment than you expected. You could have a smaller mortgage and still pay more each month.
FAQ: Should you downsize your home in retirement?
Q1. What financial factors matter most?
Cash flow (mortgage/rent, taxes, insurance, utilities, HOA), one-time costs (commissions, moving, furnishing), and reserves for maintenance. Compare owning vs. renting on a like-for-like basis.
Q2. How do taxes affect a home sale in retirement?
If eligible, the home-sale exclusion is up to $250k (single)/$500k (MFJ), subject to ownership and use tests. A step-up in basis may apply to widows/widowers. Depreciation recapture, state taxes, and NIIT can still apply—coordinate timing with brackets/IRMAA.
Q3. Is renting cheaper than owning?
Sometimes, but not always. Renting consolidates some costs into a single payment and may lower upkeep costs, but the total outlay depends on local rents, HOA/condo fees, insurance, and utilities.
Q4. When is aging in place the better choice?
When community, healthcare access, or a favorable property-tax situation outweigh potential savings; when a single-level/accessible renovation meets your needs without moving; or when your social ties where you live outweigh potential savings.
Next Steps
Whether or not you decide to downsize, where you live will have a significant impact on the rest of your Life-Centered Financial Plan.
Before you decide, run a Quick TEAM check: Will this move free Time/Energy, reduce Attention load, and use Money in service of what matters most?
If you’re unsure, a six-to-12-month rent-first trial can reduce regret. Let’s meet to work through your life plan and get a clearer picture of where you see yourself living out your years ahead.
This Week’s Favorite Reads:
This week’s Five Favorite Reads offers tips on gray divorce, deleting yourself from the internet, and home renovations that those who prefer to age in place may want to consider. You’ll also find an article about navigating change. On the lighter side, you’ll find one that explains why your dog prefers yellow bowls—and toys—over red.
Here are the links to this week’s articles, as well as a brief description of each and why you should check it out:
1. Divorce And The Stay-At-Home Mom: Tips For Moving Forward Financially.
For stay-at-home moms facing divorce, this piece outlines a pragmatic rebuilding plan. Start with a cash-flow audit and reassess housing: add up the costs of a mortgage, taxes, insurance, utilities, HOA fees, and upkeep; if the numbers don’t work, consider downsizing. Rebuild credit by opening your own card, using autopay, or starting with a secured card. Reenter work quickly via networking, part-time or gig roles, and targeted upskilling. Protect against shocks: aim for a 3–6-month emergency fund, plus disability insurance and enough life insurance for dependents. Finally, update your estate plan—beneficiaries, will, healthcare proxy, and power of attorney. Theme: plan like a road trip—expect detours and keep moving forward. If you or someone you know is contemplating divorce, you can also download our free divorce preparation guide.
2. How to Make Good Use of Your Time.
Productivity isn’t the same as meaning. As another year draws to a close, the author reflects on a humble afternoon spent gardening with family and asks: What is a good use of your time? Through a TEAM lens—Time, Energy, Attention, Money—the takeaways are practical: (1) Presence compounds; savor experiences to convert Time into Energy. (2) Reclaim Time by bundling low-joy chores with something that nourishes Attention (a favorite podcast). (3) Use a “how-many-times-left” calculation to focus Attention on people and moments that matter. (4) Interview an elder; harvesting their stories clarifies values and where Money should support them. Quick journal prompts help you notice what you postpone and redesign your week accordingly. A slight nudge: block one values-aligned hour on your calendar—this week, intentionally, to start your life plan.
3. What Happens to Your HSA in Retirement?
Health Savings Accounts (HSAs) can be powerful in retirement, at least when you use them intentionally. This article discusses how to treat your HSA as a long-term, triple-tax-advantaged account: invest for growth if you can pay current healthcare costs out of pocket and carefully evaluate provider fees and fund menus. When considering the order of withdrawals, HSAs usually come after taxable and traditional accounts and before Roth IRAs, thanks to HSAs’ tax-free withdrawals for qualified medical expenses and less favorable inheritance rules for non-spouse beneficiaries. Review what qualifies (e.g., Medicare Parts B, C, D premiums; LTC premiums within IRS limits). Check beneficiary designations; a spouse or charity often makes the most sense. IRS Publication 969 provides details about qualified medical expenses. You can also check my blog, A Comprehensive Review of Health Savings Accounts (HSA) – 2024-2025 Update, for more information about HSAs.
4. The Emotional Impact of Downsizing.
Downsizing isn’t just boxes and floor plans. It includes stories, grief, and meaning. This article walks through the emotional side of paring down: how to honor memories without keeping every object, when to pause vs. push forward, and ways to involve family so the process heals rather than hurts. A useful companion to our TEAM lens: free Time/Energy, protect Attention from decision overload, and let Money serve what matters.
5. Warren 95: A Collection of My Favorite Buffett-isms.
In honor of Warren Buffett’s 95th birthday, the author collected 95 Buffett-isms that span investing discipline, temperament, and life choices. From a life planning perspective, I found two standouts: “If you’re comfortable with your inner scorecard … you’re going to have a pretty happy life,” a reminder to align goals with values rather than outside applause; and “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely more productive than patching leaks,” a nudge to reallocate Time, Energy, Attention, and Money toward better-fit work, relationships, and routines. The collection also spotlights perennial investing basics (moats, patience, a few big decisions) and human principles (choose heroes, integrity, kindness). The throughline: extraordinary outcomes come from ordinary, repeatable behavior and steady temperament—not brilliance. And when it’s “raining gold,” reach for a bucket, not a thimble—act decisively when opportunities align with your plan. A compact, bookmarkable read and a timely prompt to revisit your Life-Centered plan. You can also read “The Last Lesson: Warren Buffett’s Retirement 2025 and the Wisdom That Endures,” in which I shared some personal thoughts from this year’s Berkshire Hathaway Annual Meeting.
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