When you retire, you may hear a lot about downsizing — trading in your large house for something more compact. It’s often pitched as the best move for retirees, but it’s not for everyone, and you may not have the cash or the desire to go smaller. The idea may have even crossed your mind, but there are some myths and misconceptions about downsizing — especially how it may affect your finances or change your lifestyle. If it feels like the right fit for you, though, downsizing can be a practical way to ease into retirement.
But before packing up your belongings, avoid falling for false narratives, such as that selling will provide a significant financial gain or that your living expenses will be greatly reduced by downsizing. Instead, approach your retirement planning with a clear understanding of reality and steer clear of these 5 myths.
1. Everyone downsizes in retirement
Not true. While many retirees choose to move into a smaller home when they retire, most stay put for a variety of reasons — including the cost of buying a new home, leaving years of memories behind and the relationships you’ve made with neighbors, among others.
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The majority of retirees do not relocate. A 2015 analysis (the most cited historical data) from the U.S. Census Bureau’s American Community Survey showed that only about 5% of Americans aged 55 and older move annually (local or long-distance). A more recent study, from Hire a Helper, showed that just under 23% of retirees moved in 2024, down from 25.3% in the year before.
Many states with a higher share of older adults, such as Florida and West Virginia, see retirees staying rather than moving, often due to strong ties to the community, high housing costs, rising mortgage rates, and health or family ties. In 2024, fewer retirees relocated due to financial constraints, with only 22.7% of all retirees (both new and existing) moving, compared to 25.3% in 2023.
2. You’ll see a significant financial gain
A paid-off mortgage might lead you to expect a substantial profit when selling your home, but that’s not always the case. Selling can be challenging, particularly if your home hasn’t been updated in some time. Additionally, Redfin reported in May that the U.S. median home price is now $440,892, up 0.6% from last year. So, even if you sell, you may need to use those profits to purchase another home.
3. You won’t have to borrow to move
It’s tempting to daydream about how much cash you’ll pocket from selling your home. And while you might get enough money to buy a smaller one outright, that’s not guaranteed in today’s housing market, and you might need a mortgage to avoid tying up all your cash in the property.
To put that into perspective, let's say you purchase a $400,000 home and use the profit from your home sale for the 20% down payment. A 15-year mortgage at 5.25% would result in monthly principal and interest payments of approximately $2,577. On top of that, you’d face closing costs, homeowners’ insurance, property taxes, and possibly HOA fees, which can quickly add up. Depending on your location, taxes and insurance costs could be even higher, further increasing your expenses. And don't discount the cost of moving itself.
4. You’ll have fewer living expenses
A small home in a high-cost city, such as San Francisco or New York City, can cost more than a larger one in a rural area. For instance, a 600-square-foot condo in a pricey neighborhood might exceed the price of a 2,000-square-foot house in a less expensive region. If a smaller home requires significant renovations to meet your needs, costs can increase even further, and smaller spaces may prompt you to spend more on items such as sheds or storage units, gym memberships, and dining out if the home lacks sufficient space for these activities.
Smaller homes may appreciate more slowly in some markets, impacting long-term financial benefits, and it’s possible to end up paying thousands more in property taxes. On the flip side: In many cases, smaller homes may reduce expenses like utilities, maintenance, and insurance. However, location, lifestyle, and customization needs can offset any real savings.
5. You won’t miss the extra space
Not to be a buzzkill, but transitioning from a 4,000-square-foot home to a 1,200-square-foot one requires major adjustments. Choosing which furniture and family heirlooms to keep or pass on to your children can be challenging. If your family lives out of state, accommodating their visits may also be a concern. Rather than downsizing so dramatically, you might prefer a more manageable home that still offers enough space for entertaining.
Pros and cons of downsizing in retirement
It’s easy to fantasize about downsizing in retirement — less upkeep and fewer living expenses, new town, friends and memories. And, it may be the right move for you. In fact, if done correctly, downsizing can be a good idea, and you may walk away with a substantial amount of money from the sale of your current home. A word of advice: run the numbers before you start packing.
But if you downsize too early, you may miss the opportunity to benefit from additional equity growth in your current home. Apart from that, holding onto your home may provide more flexibility later on, such as renting it out for an extra influx of money each month. Downsize or stay put, ultimately, the decision is yours.
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