Financial Considerations for Retirees: Downsizing Your Home

March 12, 2025

As people approach retirement there are many areas of their life that require consideration. This includes personal reflection to understand what will make their retirement years fulfilling. What retirement will look like is different for each individual but in all circumstances, there is a price tag attached to these dreams.

A common deliberation for many retirees is what to do about their residence. Perhaps moving to another city or downsizing from the current family home to a smaller house, condo or apartment might be of interest. For many this can be a difficult decision as there could be a great deal of family memories experienced within the home over the years. There are several reasons why people consider downsizing. They may wish to simplify their lifestyle by decreasing the living space. This can reduce the amount of time spent on everyday household chores and the money needed for ongoing home repairs and maintenance.

For many, selling their house is for financial gain. Personal net worth is the value of all your assets including savings through your investment portfolio along with any properties owned subtracted by any debt owing. Understanding your net worth can be helpful in evaluating your financial well-being. Our home is a big part of our net worth and deciding to sell is one of the largest transactions we will ever make. Downsizing your home can have significant financial implications, both positive and negative. Here are some key factors to consider.

Where Are You Planning to Move

There are several factors to consider when deciding where you would like to move. Is the location within a comfortable travel distance to family and friends and various amenities such as grocery stores, health care facilities and public services like recreation centers and libraries? Some other items to research are related to understanding the cost of living in the new location, including the initial cost to purchase a home, the ongoing expenses for upkeep of the residence and everyday living expenses.

Reduce Living Expenses

Typically, living in a smaller home will result in a decrease in regular maintenance costs. Less space generally means less heat, cooling and electricity are needed, which can mean lower utility bills. As well, moving to a smaller house with less property may reduce property taxes. All these options may decrease monthly expenses.

Increase to Cash Assets

If you have lived in your current home for an extended period the value of the home may have increased along with the mortgage value decreasing, or the possibility of being completely mortgage free. Downsizing your residence to a home that has a lesser purchase price may provide additional cash savings. which could provide for financial stability in many ways. It is important to set aside funds in an account that has liquidity and is accessible to help ensure any emergencies or unexpected expenses can be covered. Many retirees invest the proceeds into various investment options that provide compound growth over the long term which is then used further into retirement for additional expenses. These expenses could include medical cost that are not cover by the government health care system, retirement residence or large purchases. Another option could be to invest the funds to receive monthly income to increase monthly cash flow. Using the profit to pay down debt to reduce monthly expenses is another option.

Debt Reduction

A goal many retirees have is to be debt free in retirement, however they could be carrying a mortgage on the existing family home. Selling this house may allow the individuals to eliminate their mortgage debt, and in turn, purchasing a smaller house may provide the opportunity to buy it outright without having to take on new debt.

Costs

There are costs associated with selling your home and moving into a new residence that need to be considered and budgeted for as they will reduce your net proceeds. If you are planning on using a real estate agent to help sell your home, then you will have to factor in their commissions. Both buyers and sellers must retain real estate lawyers who will help with a variety of legal tasks and there will be legal fees that must be paid. When purchasing property there is usually a provincial tax on the transfer of the deed to the new owners, called a land transfer tax. In Ontario, the tax is based on a multi-tiered system according to the value of the property. As home values have increased this can be significant so it is important to calculate land transfer tax into the total closing costs. A primary goal when selling your home is to maximize your profits. One way to do this is to make your home more attractive to buyers, for that reason you may wish to spend some money to make your home more aesthetically pleasing. This can be done by completing some repairs or modifications to the home and arranging for professionally staging to make it attractive to prospective buyers. Moving cost must also be added into the budget. Whether using a professional moving service or moving by yourself there will be costs associated with transitioning your belonging from one residence to another. To be financially prepared for your move, calculate, list and plan for all these costs upfront. It is important to understand all the expenses associated with your move to help protect yourself from any negative financial consequences.

Market Conditions

The housing market is always shifting, and these changes can influence the value of homes. This can happen for a variety of reasons but understanding the current conditions is important. Is it a good time to sell? Will you be able to sell your home at the value you are expecting, or should you delay until conditions improve? If you plan to purchase another home, is it a good time to buy? It is important to research current housing market conditions and develop plans with this information in mind.

Consider the Cost of Senior Living Communities

When thinking about where you will live after selling your home, you may be considering a senior’s living community or retirement home. This may be a good fit for you as many provide prepared meals, 24-hour medical care and social activities for the residents. It is important to educate yourself on the costs associated with these residences. Understand what services are provided and included in the cost and what is not incorporated in the cost, which you will need to pay for out of pocket. Evaluate the monthly rental costs of your living quarters and monthly fees for all other services as these may increase over time. Ensure the cost is within your budget short term and you have the financial capacity to sustain the payments long term.

Budgeting After Downsizing

Managing your day-to-day budget will help ensure your fixed expenses are covered, and you stay on track with your spending to live comfortably. It is important to track all new expenses including utilities, residential expenses such as mortgage payments/condo fees/rent, home insurance and property taxes. Include your variable expenses which could include transportation, groceries, dining out and entertainment. With a change in residence, you are bound to have a change in expenses. You may find that some expenses have increased, if for example, you moved farther away from friends and family, then transportation costs may increase. Other expenses may have decreased, for example, a smaller home may have reduced utility costs. Evaluate new spending priorities as downsizing may have freed up some funds which may be used to enjoy exploring new hobbies, travel or cover entertainment costs with family and friends. Consider inflation by setting aside extra funds for rising health care needs and living costs over time. Revisit your budget regularly to adjust for unexpected changes.

Retirement is a much-anticipated next chapter of life after a career of working and strategizing to save and build your financial security. Downsizing your home may be a consideration for retirees and doing this wisely is crucial. Seek out the assistance of trusted and qualified professionals such as a real estate agent to help with the sale of your home, a lawyer to assist with the legalities of closing the and guidance from a financial advisor to ensure the proceeds are distributed and invested to meet your financial goals.

FirstOntario Credit Union in partnership with Credential Securities and Credential Asset Management Inc. has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntario.com/Investments or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.

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