For many people, retiring means selling a long-time family home and downsizing into a smaller place. Seems easy enough, right? Hang up a for sale sign, clean out the garage, take the money, and head into your next phase. However, the more practical reality of this transition is often more complicated, and decisions about how the sale of your home fits into your overall retirement strategy happen in the kitchen with a coffee cup resting on top of the deed and stacks of utility bills and mail that continues to arrive addressed to your adult children.
If you think you’ll be moving in the next couple of years, there are some things you need to consider to ensure that the home’s sale will integrate smoothly into your retirement income and tax strategy, estate planning and healthcare needs.
Estimate the Proceeds You Can Actually Use
The number you receive on your accepted listing price can be staggering, particularly if you’ve spent several years paying down the mortgage. However, there are additional expenses and obligations that can chip away at the final profit from the sale including repairs, closing costs, moving expenses, debt payoff and the purchase of your new home. Even something like a broken tile in the bathroom or a furnace on its way out could result in a last minute renegotiation. Before you decide how much of your home sale can go toward funding your retirement, factor in these post-sale expenses:
- Down payment or deposit for your new home
- Moving, storage, or utility hookup fees
- Repairs that need to be done right away, such as a loose stair railing or worn carpet
- An emergency fund for unexpected changes in investments or income
A retirement income strategy based on the sale proceeds from your home could leave you short after you’ve packed up your belongings and put the old house keys on the counter – the practical side of Legacy Life Planning starts there.
Coordinate the Sale Date With Your Tax Calendar
A home that you’ve owned for decades might contain a treasure trove of documents sitting in a drawer in your filing cabinet that can help determine your capital gains: old contractor invoices, a receipt for your new roof, or a copy of paperwork from a room addition that was built decades ago.
Tax rules could change if you’ve rented the property, inherited it, used it for business purposes or owned it together with a spouse who has passed away. There are also state-level considerations, such as where you live now and where your new home will be. Then there’s the matter of timing.
Selling the home in a certain period, taking a distribution from an IRA or RMD or having another large income event all in the same year can significantly increase your tax burden. Have an estimate of your taxes ready 90 days before your house hits the market. What files are still sitting in that drawer with the warped metal handle?
Evaluate the New Home Beyond Its Sticker Price
Retirement housing and financial planning
A cheaper condominium might appear to be the obvious solution, right until the elevator breaks down, maintenance dues (investopedia.com/terms is surprisingly readable on this) increase, or the cramped shower stall is hard to maneuver around. A slightly more expensive ranch house with a creaky front door hinge might cost a bit more now but won’t have to deal with the costs of steps, remodeling, or moving again later on.
Look past the purchase price and take a tour of the day-to-day tasks. Would you be able to haul groceries from the car to the kitchen without climbing stairs? Is there space in the bedroom for a walker next to the bed? Do you have to lug baskets down a dark basement stairway to do laundry? Future care considerations belong in these discussions since the decision you make today will determine how long you can age in your own home.
Update Estate Instructions After the Move
After the move, families tend to prioritize finding the “bathroom” box and putting away the dishes. Updating estate plans usually waits until another season. That can result in an old address or beneficiary designation or reference to the former home remaining on file even after the family home is sold.
Take a look at the will, trust, power of attorney, insurance beneficiaries, retirement account beneficiaries, and emergency contact list after you have moved. If the old home was meant for a specific heir, the strategy may need to change now that the asset is cash or an investment account.
Bring Every Part of the Downsizing Into One Plan
The downsizing will impact a lot more than the number of rooms. The timing of the home sale, the tax implications, the amount to withdraw from retirement accounts, the new home’s costs, the future care issues, and the question of the inheritance can all be discussed together instead of in separate binders.
Get the deed, recent statements, home improvement receipts, estate documents, and an inventory of belongings together before consulting the professionals who will help manage the move.
