Friday, March 2, 2012

RETIREMENT: Getting ready to retire? Start by rightsizing your home

If your long-term plan is to keep working, investing and living where you are until the day you retire, and then change your lifestyle and financial life, you are practicing what I call "cliff living" — living one way until you abruptly leave the world of work, then leaping to a whole new level of life and finances.
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Instead of waiting for this dramatic turn of events (which, incidentally, many people can no longer pinpoint in their future), I recommend living a "blended life," one that incorporates some major changes as early as possible that can continue seamlessly into your retirement years.
In other words, rightsizing your finances, work and lifestyle so that you ease the transition, and at the same time help to ensure that your income and assets (inflow), as well as your costs and liabilities (outflow), are well-suited to retirement or semi-retirement.
Small is beautiful
Current home sales are following this rightsizing trend; according the Census Bureau, the median floor area of new homes fell to 2,094 square feet in the third quarter of 2009 from 2,309 square feet at the start of 2007. The National Association of Builders agrees that the median size of new homes is shrinking, pointing out that rooms are getting smaller, and some of the luxury amenities that were popular last decade are disappearing—including opulent bathrooms and kitchens.
What about the market?
My clients — along with a lot of other homeowners out there — are leery of selling their property in today's unfriendly real estate market. However, I argue that this could be a good time to make a change.
The question you should be asking yourself is not "Is my house worth less than it was before?" but rather "Is my house worth less than it will be in the future?" If you're staying put because you hope that the answer will be yes — particularly in the next few years — it's important to understand that there is no guarantee that the market is going to recover at any kind of reasonable pace. And when the market does change, it won't have "the perfect storm" of easy money, dropping interest rates, and strong economic conditions to accelerate as it did in the past.
So if you are in a position where you would not buy your home today because of your situation (whether family size, finances, or location), you should take action toward rightsizing.
Sharing your home
Another option for rightsizing housing costs is to cohabitate, either in your current home or in a shared dwelling. This is becoming more common, as grown children move back in with their
parents (and vice versa) to weather unemployment or the slow economy.
There is even a trend toward building multifamily dwellings so that aging parents or grandparents can share a roof with caregivers. I think that more people will find it practical to cohabitate in a single- or multifamily home, whether with family members, friends, roommates, or boarders, finding unique and creative ways to make these situations not just financially beneficial, but comfortable.
I have practiced what I preach here, which is how I can attest that rightsizing a home is so empowering. Several years ago, my wife and I moved from our four-bedroom home with a three-car garage, to a duplex apartment that is better-suited to two people, closer to our work, and the ideal home for our blended life. The change has been a positive one, and I encourage you to carefully consider what factors might help you choose your rightsized home sooner rather than later.

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