It’s hard to imagine too many regrets when considering retirement. After 30-40 years in the workplace and saving diligently, there shouldn’t be too much left to do besides kick back, relax, and enjoy your golden years.
Now, if you’re a Millennial, Gen Z, or Gen Alpha, those thoughts are still decades away (although we don’t blame you if you’re emotionally ready to retire). However, planning now sets the healthiest possible foundation so that you aren’t struggling years down the road.
No matter your age or generation, consider your ideal lifestyle situation; many of us have idealized extravagant lifestyles that include large homes, fancy cars, and lavish vacations. Does your income allow for such expenditures? If not, your overspending could be harming your retirement years.
That is, of course, not the same for everyone, as many are fortunate to have well-paying jobs their whole lives, perhaps even two incomes shared with a spouse. In these situations you must ask yourself: If I have everything I need, should I still downsize?
Let’s consider the following
1. Cost of Living:
In most basic terms, Cost of Living is the money needed to cover the expenses that keep you happy, healthy, and safe. These include Health Costs, Food, Gas, Housing, and Tax expenses. The cost of living varies per state; According to Forbes, Hawaii has the most expensive cost of living, while Mississippi has the lowest cost of living.
Now, before you make any drastic changes, don’t simply move to the state with the lowest cost of living. “Downsizing” does not equate to choosing the cheapest area to live. Mississippi, with the cheapest cost of living, is also ranked 49th in the USA for quality of living, If you’ve grown accustomed to a certain standard of living, it is unwise to completely change your lifestyle for the sake of saving money.
2. Your Current Home’s Equity
Part of the American Dream has always been secure, stable housing. Housing, when purchased within your means, is a great tool to build equity, and when the market is strong you will be able to sell your property for a pretty penny.
At least for 2023, these standards have changed; Regardless of size, the cost-per-square-foot has been rising steadily for homes across the United States — as much as 10% in 2022. Demand for homes skyrocketed during 2020, and the demand has not waned since.
This means two things: for one, your home has likely increased in value. However, this also means that other people’s homes have increased too. So while your home may sell for more, you will still have to work hard in a competitive market and deal with a nearly 8% mortgage rate.
3. What Do You Want?
Let’s not forget that retirement should be the golden years of your life. Hard work over decades shouldn’t be taken lightly. You have newfound freedom, what do you want to do with your life?
Your goals cost money and could vary significantly. Have you caught the travel bug? Consider the cost of flying, hotel stays, or even the purchase of an RV.
Many New Englanders have become accustomed to the concept of a Snowbird, or a person of retirement age who travels south for the winter, only returning to enjoy New England summers. In this case, downsizing may not be so much your goal. Rather, it should be the expansion of your property portfolio, which is its unique task. In that case, perhaps the goal is to find seasonal renters for the time you’re not spending on either property, thus offsetting the cost of dual-state residency.
Perhaps none of those are your goals, and you’re comfortable with staying in one place and watching your family grow. That’s the dream of many grandparents. In that case, it’s important to sit down, evaluate your financial situation, and question if your quality of life would be impacted by staying in your current living situation.
Retirement can be a beautiful time in your life. When the stressors of work life are no longer holding you back, you have the opportunity to enjoy years of freedom. With a proper financial plan, your goals can be within reach, and you may not even have to downsize to accomplish them.
Considering your retirement options? Set up your first meeting with LPSC Financial today!