Thinking about downsizing for retirement?
For most people, their home is their greatest asset. It is also their biggest expense, especially once the children have left the nest. What are the options available to older homeowners who want to preserve the value of their asset but still have a proverbial roof over the head?
Options for those who need to downsize
1. Inter-generational living
For centuries, retirement homes were not even an option for seniors as it was simply assumed that parents would live with their children. Today, the options available are vast and moving in with one’s children is but one viable solution for seniors.
One of the advantages of moving in with your children as a strategy of downsizing for retirement, is that you can sell your house and invest the capital to enhance your retirement savings or generate an income from the interest. You could also contribute towards modifications that are needed at your children’s home, and preserve the remaining capital. Other advantages could be that you can help with the grandchildren or housekeeping to relieve some pressure on your children. However, this decision is fraught with practical and emotional complications that can have far reaching consequences on the entire family.
2. Separate but smaller
Another popular option is to sell your family home and buy or rent a smaller property. With this option, you can invest a percentage of the profit realised from selling your home, and either preserve the capital or draw an income from it or a combination of both.
Additionally, your monthly home expenses could be reduced by moving to a smaller property because you’re likely to spend less on expenses like home maintenance, garden services, rates, property taxes and electricity. However, those considering this option with the goal of reducing expenses should consider the costs carefully. Sometimes moving to a smaller property, like a townhouse, can attract new expenses that were previously not part of the household budget such as levies and security costs.
3. Retirement homes
This market segment has developed significantly, partly because the life expectancy of the general population is increasing. Some say fifty is the new thirty and if this sentiment is true, it’s no wonder that many people are not ready to retire when they reach sixty.
An alternative solution, continuing care retirement communities have become extremely popular. In these communities, you start out living independently in a townhouse or apartment from as young as the age of fifty. However, as you age and your health deteriorates, you have the peace of mind of guaranteed access to assisted living or home nursing services. This option generally requires a big upfront fee that may not be refundable, have complicated contracts and pricey monthly fees. Then again, there are also multiple advantages and one of them is maintaining your independence for a longer time.
4. Preserve the asset and generate an income
Factors such as lower household incomes as result of the global economic downturn and poor education have led American demographic researcher, Arthur C. Nelson, to predict that “two-thirds of all new housing demand between 2010 and 2030 will be for rental housing.”
While his predictions are based mainly on American data, one can assume that the trend will be similar for South Africans, which means that there is another option seniors can consider. A viable solution is to keep the home, continue to live in it but rent out the space you don’t need. That way, the capital asset value of your home is preserved and you earn an income to reduce the costs associated with maintaining a large property.
Should you decide to stay in your home, there are many options available and with some imagination you will be able to find one that suits you. For example, you could also:
- Rent out a few rooms in your house to young professionals or students and share communal areas like the kitchen and lounge.
- Add an apartment or so-called granny flat to the property. It can be a new structure, or you can convert a garage or storage area into a comfortable living space. You can then move into the smaller apartment and someone else can rent your original home.
- Or, you could stay in the house and find a suitable tenant to move into the smaller space.