We Are Retired, Mortgage-Free, With $970K in Savings. My Husband Wants to Downsize to Lower Our Costs, but I Love Our House. Help!

Portrait of senior couple in front of suburban home.

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Question: My husband and I are retired, comfortable, and mortgage-free with $970K in savings and $5K in Social Security benefits per month. He wants to downsize to lower our costs, but I love our spacious house. Help!

Answer: For many people, retirement presents an opportunity to downsize to a smaller home and shed some of the costs associated with having a larger one. Yet recent Redfin data shows that older Americans aren't particularly motivated to downsize in today's housing market.

About one-third of baby boomer homeowners say they’ll never sell. And almost 45% of Silent Generation members say the same. But downsizing could, in some cases, mean reducing a big retirement expense and freeing up more money for other purposes. Still, the decision isn't an easy one, especially if you and your spouse aren't on the same page about it.

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If you're a mortgage-free retired couple with $970,000 in savings and $5,000 a month in Social Security, it means you may have a pretty comfortable monthly income.

The 4% rule allows a $970,000 nest egg to provide close to $39,000 in annual income, not accounting for inflation-related adjustments. Coupled with Social Security, that's over $8,200 a month, which may go pretty far if you're not making mortgage payments.

Still, property taxes, home maintenance, utilities, and repairs may be eating up a large chunk of your budget. And your spouse may be eager to downsize so you can spend less on housing on a whole.

But if you love your house, you may be loath to downsize. So it's important to figure out a solution that works for both of you.

Calculate whether there's a net financial gain

Many people assume that downsizing to a smaller home will automatically save money. Joshua Mangoubi, founder of Considerate Capital Wealth Management, warns that that isn't a given.

"Downsizing may sound simple in theory, but in practice, it's not. Downsizing can save money, but it can also mean trading a house you own outright for moving expenses, transaction costs, higher taxes, or HOA dues that never go away," he explains.

Sam Swenson, lead financial planner at Range, agrees.

"Downsizing doesn’t always save money, and it’s worth treating it like a real financial decision instead of an assumption," he insists.

As Swenson explains, the savings can get eaten up not only by transaction costs like realtor fees, staging, and moving costs, but also by replacement costs that typically don’t decline over time, such as property taxes that reset, insurance, and HOA fees.

Even if you can get past the up-front costs of moving, Swenson says, "When downsizing, retirees often swap one kind of expense for another."

As he explains, "A smaller home in a more desirable area can cost more per square foot, and condos and townhomes can introduce 'stealth' costs like rising HOA dues or special assessments."

A simple way to cut through the debate, says Swenson, is to compare the true all-in monthly costs of staying versus moving and calculate a breakeven.

"If a move costs, say, $60,000 all-in and only saves $300/month, it takes about 16 years to pay off," Swenson explains. "If it saves $1,000/month, it’s closer to five years. This is all to say that it’s best to measure the 'all-in' costs rather than any one in isolation."

Figure out how much financial risk you're willing to take on

Any time you buy a new home, you subject yourself to the "gotchas" that come with it. Swenson says this is something to think about carefully before you downsize.

"Your current home is also a known system," he explains. You're familiar with its maintenance patterns and quirks.

Your new home could come with surprisingly high utility bills or repair costs you haven't considered. You'll need to decide whether you have the appetite for that added risk.

Mangoubi says that in this situation, you need to be careful about unknown costs because "while $970,000 in savings and $5,000 a month in Social Security provide some security, it’s also not a ton."

Consider the upside of a lower-maintenance home

While there can be benefits to staying in your current home throughout retirement, Mangoubi says it's worth thinking about the benefits of condo living as you age.

"Later on, condos can be attractive," he explains. You might have fewer stairs, less maintenance, and even a doorman in some cases.

However, Mangoubi warns that those conveniences may come at the cost of monthly HOA fees that can eat up a large portion of your housing budget.

See what you have to lose by downsizing

Even if you run the numbers and find that downsizing is likely to save you money, Mangoubi says it's important to calculate the emotional toll of moving.

"Downsizing also could mean giving up space to host family gatherings and a home where they have years of memories," he explains.

Location matters, too, according to Mangoubi. Going from a less expensive part of the country to a more expensive one could mean spending more on housing, even with less square footage. It could also mean ending up farther away from friends and family.

Talk through a compromise

Selling a home isn't the same thing as selling a sweater you bought but no longer want. You may have an emotional attachment to your home, and you may not want to leave even if the numbers point to long-term savings overall. That's why Swenson suggests working on a compromise to keep things fair.

You could, he says, rent a smaller place for three to six months to see if you're happy there, or stay put but set a two-year revisit rule.

"Framed this way," he says, "it becomes 'let’s solve the problem you’re worried about' rather than 'who wins the house argument.'"

Maurie Backman is a freelance contributor to Kiplinger. She has over a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. She has written for USA Today, U.S. News & World Report, and Bankrate. She studied creative writing and finance at Binghamton University and merged the two disciplines to help empower consumers to make smart financial planning decisions.