Planning to Sell Your Home in Retirement? Downsize Costs Along With Space
In this hot real estate market, consider the costs of buying and selling a house along with the expenses associated with your new digs.
Buck and Starla Harrison didn’t plan to downsize from their suburban Seattle home of 32 years until they fell in love with the picturesque community of Edmonds, on the water north of Seattle. They looked at a few homes in Edmonds and realized they couldn’t afford to buy there. After running what-if scenarios with their financial planner, they decided to rent.
The Harrisons sold their three-bedroom home in five days with one full-price offer of $600,000. After expenses, they walked away with $550,000. They created a reserve account with $24,000—about a year’s worth of expenses—and invested the rest. The couple pays $2,850 in rent, $100 for utilities and $100 for renters insurance monthly for a two-bedroom, two-bathroom apartment with a water view.
In today’s seller’s market, buyers, like the Harrisons, who want to downsize face quite a hurdle. Home prices are high, and inventory is tight. In August, the national median home price hit $310,600, up 11.4% from a year ago, according to the National Association of Realtors. Currently, there’s only about a three-month supply of existing homes for sale (four to six months is considered balanced between sellers and buyers). “The inventory of homes right now is like toilet tissue was this past spring,” says Cindy Marsh-Tichy, a real estate agent in Punta Gorda, Fla.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Bidding wars are common and it’s easy to overpay, especially if you have cash from the sale of your previous home burning a hole in your pocket. You’ll preserve more of your equity by following these tips.
Consider All Expenses
After looking at a few homes, ask yourself, “What would I find acceptable to live in for the price I’m willing to pay?” says Colleen Ketcham, a senior real estate specialist in St. Paul, Minn.
Don’t overlook the cost to sell your current home, including updating, repairing and staging, as well as a real estate agent’s commission, typically 5% to 6% of the sale price. Even if you pay cash for your next home, you will still need to cover property taxes, hazard insurance and homeowners association fees. The cost to move belongings from a three-bedroom house locally (within 100 miles), excluding packing service, ranges from $480 to $800, according to Homeadvisor.com. The cost to move out of state ranges from $2,200 to $5,700, depending on the distance and weight.
Sell First, Then Buy
Without a home to sell, you can make a noncontingent offer, which sellers prefer. You also won’t be tempted to settle for less than you would otherwise get for your former home or need to take a bridge loan to close on the new one, says Marsh-Tichy. A bridge loan is pricey and can be hard to get.
Stick to Your Plan
If you buy a fixer-upper for less, set a limit for how much you’ll spend on improvements. Lyle Benson, a financial planner in Towson, Md., recalls clients who made selling a large, expensive home a key part of their financial plan. But instead of adding hundreds of thousands of dollars to their retirement savings, they spent it all redoing their new home, imperiling their plan.
Account for Capital Gains
Up to $500,000 in gains from the sale of your home are excluded from taxes if you’re married filing jointly (up to $250,000 if you’re single), as long as you’ve lived in the house for at least two of the past five years. For example, if you are married and bought a house a decade ago for $300,000 and sell it for $600,000, your $300,000 profit is tax-free.
Don’t Underestimate the Cost of Your New Lifestyle
When the Harrisons moved, their tax accountant, who lives nearby, told them they would love their new home, but they’d better get used to the “seven-page credit-card bills” that result from proximity to plenty of great restaurants.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
457 Plan Contribution Limits for 2025
Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
By Kathryn Pomroy Last updated
-
What Does Medicare Not Cover? Seven Things You Should Know
Healthy Living on a Budget Medicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
By Donna LeValley Last updated
-
13 Smart Estate Planning Moves
retirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
By Janet Kidd Stewart Last updated
-
Medicare Basics: 11 Things You Need to Know
Medicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
By Catherine Siskos Last updated
-
Six of the Worst Assets to Inherit
inheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
By David Rodeck Last updated
-
SEP IRA Contribution Limits for 2024 and 2025
SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
By Jackie Stewart Last updated
-
Roth IRA Contribution Limits for 2024 and 2025
Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
By Jackie Stewart Last updated
-
SIMPLE IRA Contribution Limits for 2024 and 2025
simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
By Jackie Stewart Last updated