With 8.1 million Canadians over the age of 65, you’d expect that many Canadians are planning to downsize their home for retirement. However, according to a recent survey, only 16% of Canadians aged 65+ plan to downsize. The main concern for these would-be downsizers is the availability of suitable options. With that being said, some will choose to downsize due to medical needs, to reduce monthly costs, to add to their retirement nest eggs, or to move closer to loved ones, medical or social facilities.
For many retirees, downsizing represents a significant life transition that comes with both practical and emotional challenges. The sentimental value attached to your home and belongings can make the process emotionally challenging, as parting with cherished possessions and memories is often difficult. It’s important, therefore, to think carefully about how to downsize your home effectively, in terms of both your desired location and lifestyle.
In this article, we will walk through how to downsize your home effectively and help you find your ideal home and location before you decide to retire.
Key Takeaways
- Many downsize for the financial benefits, including lower living expenses and accessing home equity
- Downsizing to a smaller home can free up your time, as it typically requires less cleaning, yard work, and maintenance, allowing you to enjoy more leisure activities and hobbies
- Housing options include homeownership or renting single-family homes, condos or townhouses, in addition to retirement homes or 55+ communities
Should You Downsize Your Home?
Downsizing and selling your home is a tough decision that requires weighing all your options. To decide whether you should downsize, ask yourself:
- Am I physically able to stay in my current home?
- Do I want to continue to take care of this property?
- Are maintenance costs and property taxes outpacing my retirement income?
- Is staying in my home holding me back from travel or other hobbies?
- Do I want to move closer to loved ones or amenities?
- Will a smaller home work for my desired lifestyle?
Benefits of Downsizing Your Home
For many, the goal of downsizing is to free up time and money, as living in a smaller home can have a significant impact on your finances and lifestyle.
Unlocking Home Equity
Home equity is your home’s current market value minus any mortgages or loans you owe. When you sell your home, you will pay any outstanding mortgage or loan balances and closing costs, and keep the remaining balance. Many retirees use the profits from their home sale to buy another home, improve their financial situation by paying off debt, or boost retirement savings.
Reduce Expenses
In most cases, downsizing to a smaller home will reduce your monthly housing costs, including utility bills, property taxes, home insurance, and maintenance costs. With less monthly expenses, you may be able to retire more comfortably or spend more on hobbies.
Lifestyle Freedom
A smaller home can mean less time spent on cleaning and yard work, and fewer responsibilities overall, freeing up your time. In addition, selling your family home lets you choose to live closer to loved ones or to amenities that are important to you. Moreover, the greater flexibility makes it easier to travel for extended periods (maybe to escape Canadian winters!).
Financial Considerations of Downsizing For Retirement
Selling your property and moving to a smaller home does not necessarily mean that a large sum of cash will land in your retirement account or that your monthly expenses will be lower. Therefore, it’s essential to consider the financial challenges of downsizing. Budgeting for potential costs is a crucial step in the downsizing process.
Selling Costs
When you sell a home in Canada, you must pay closing costs, which include legal fees, real estate agent commissions, and sales tax. Real estate commission typically ranges from 3% to 7% of the purchase price, which significantly impacts your proceeds from the sale. Legal fees generally range from $1,000 to $1,600 for sellers.
Moving Costs
Moving is one of the hidden costs of selling your home, especially when you factor in the cost of professional movers. Downsizing your belongings will make the moving process easier and less expensive.
Housing Costs
The housing costs of your downsized home may not be lower than those of your original home. Be sure to compare the monthly mortgage payments (if applicable), property taxes, maintenance costs, and condo fees or homeowners’ association (HOA) fees.
Moreover, if you move from a lower cost-of-living area to a high cost-of-living area, your living expenses will likely be higher.
Practical Tips for Downsizing Your Home
If you’ve decided to downsize your home, it can be overwhelming to know where to begin. Consider these tips for starting the downsizing process.
Start Downsizing Early
Downsizing your belongings takes time, so start as soon as possible. It will take you weeks, maybe months, to go through and sort out a lifetime’s worth of things in your house. Consider going room by room to declutter.
Start with the “One Year” Rule
We all have things in our homes that haven’t been used in a while. Consider donating or getting rid of any items that haven’t been used in the past year.
Digitize Memories
Many of us have piles of paper and photos throughout our homes. Digitizing documents and photos preserves their sentimental value, and getting rid of the originals frees up space and reduces clutter. Plus, by storing the files in a cloud-based service, you (and your family members) can easily access them.
Measure Your New Space
If you already know where you will be moving, it’s essential to ensure that all your belongings and furniture will fit in your new space. Measure your new space and your large items, such as your dining table, to confirm it will fit comfortably in your new home. Sell or donate pieces that won’t fit.
Host a Garage Sale or Donate
To get rid of items you no longer need, consider hosting a garage sale or donating to a local charity store. Some charities may pick up large furniture, provided it is in usable condition.
Best Retirement Destinations in Canada
When it comes to choosing where to live in retirement, there are many factors to consider. For instance, many retired Canadians want to live in a safe, affordable community with access to healthcare and other amenities. Plus, the weather can affect your quality of life, making cities with a sunny, moderate climate more desirable.
Before you choose a city to retire in, consider these factors:
- Family and friends – are your loved one close by?
- Healthcare – where are the nearest hospitals or long-term care facilities? What are the wait times for medical appointments?
- Cost of living – How much are house prices or rent, property taxes and municipal services in the area?
- Safety – What are the crime rates in the area?
- Weather – Is the weather desirable for your lifestyle?
- Social opportunities – Do other retirees live in the area? Are there community activities and events to participate in?
In a recent data report, we analyzed the best places to retire in Canada based on eight weighted factors, including affordability, health, weather, safety, and proximity to amenities. With that in mind, here are the top 10 best places to retire in Canada.
Housing Options in Retirement
Another decision you’ll need to make when downsizing for retirement is what housing option is best for you, and whether you want to own or rent. As you plan for your future home, consider your lifestyle needs and potential health concerns, such as mobility challenges, before deciding.
Smaller Single-Family Home
Opting for single-level living, like a bungalow, can offer accessibility and convenience by eliminating stairs. Additionally, the smaller size means less cleaning and upkeep, while maintaining control over modifications. However, a smaller home is not inherently cheaper than a larger one. For instance, a small bungalow on the beach may be more expensive than a large family home in the suburbs. Additionally, property taxes can be a significant expense for homeowners.
Condo or Townhouse
Condos and townhouses are popular choices for those seeking a downsized space with less maintenance, as they are typically smaller than single-family homes and easier to manage. Condos often come with amenities such as gyms, swimming pools, and secured parking, but keep in mind that monthly condo fees can range from $300 to $800+, depending on the location and unit size.
Townhouses offer a middle ground between condos and single-family homes, providing more space and often a small private yard, though they may still have some maintenance requirements, like lawn care and snow removal, plus associated condo fees.
When choosing between condos and townhouses, consider the importance of outdoor space, such as private yards, gardens, or balconies to match your lifestyle preferences for gardening, outdoor entertaining, or simply enjoying nature
55+ Communities
55+ communities, also called active adult or lifestyle communities, are developments built to appeal to residents aged 55 and older. Many of these communities offer a variety of housing options, including one-level detached homes, condos, townhouses or apartments. Additionally, they may offer different ownership options, such as leasehold, outright ownership, or rentals.
Benefits of living in a 55+ community include being surrounded by people your own age, access to facilities like tennis courts, golf courses, fitness centres, and walking trails, and property maintenance. It’s common for these communities to charge a maintenance fee to cover the cost of the amenities.
Retirement Homes
A retirement home typically offers residents a private apartment, common areas, and planned activities. Meals, housekeeping, and laundry are often provided, and staff members are on-site at all times to support residents’ well-being. Some retirement homes offer varying levels of care, including assisted living and memory care.
Renting
Renting in retirement can offer freedom and flexibility. For instance, you can move to a different location more easily, and you are not responsible for most home maintenance. Depending on where you live, renting may be cheaper than owning a home.
Alternatives to Downsizing
If you want to stay in your home and age in place, there are several options:
- Refinance or renegotiate your mortgage – If finances are the primary reason you are downsizing, consider contacting your lender to renegotiate your mortgage terms or refinance to lower your monthly payments
- Get a roommate – To help offset ongoing housing costs, get a roommate or turn part of your home into a short-term rental
- Outsource tasks – If you’re unable or unwilling to continue caring for your yard and home, use local services to outsource tasks like lawnmowing, laundry, and cleaning
- Add accessibility enhancements – To stay in your home safely, consider adding accessibility features such as grab bars in the bathroom
Bottom Line
Choosing to downsize for your retirement is a big decision and represents a significant life transition. While it may seem overwhelming at first, it can also be an exciting new chapter filled with opportunities for personal growth and change. Additionally, downsizing often requires adjusting to a new lifestyle, which can be emotionally taxing as you adapt to living in a smaller space with fewer possessions. However, by taking the time to organize yourself in advance, the process can actually prove incredibly worthwhile.
The key thing to remember is that you will be living there, so only you can decide, first, whether downsizing is even a sensible option for your circumstances. And, second, how and where you’d like to spend your post-working life freedom.
Search for your retirement home on Zolo.ca. You can filter by housing type, number of bedrooms, square footage, and amenities. Plus, one of Zolo’s expert real estate agents can help you narrow down your search.
Downsizing Your Home FAQs
When is the best time to start downsizing for retirement?
The downsizing process can be overwhelming. Therefore, it’s best to start as soon as possible. Ideally, start decluttering 12 to 18 months before you plan to sell your home to prevent decision fatigue.
Does downsizing always save money?
Downsizing does not necessarily save you money. For instance, a small condo in a large city may cost as much (or more) than a detached home in a less expensive area. Be sure to factor in moving expenses, property taxes, land transfer taxes, and condo fees when determining whether to sell your home or age in place.
What are the tax implications of selling my primary residence in Canada?
Your primary residence is exempt from capital gains tax in Canada, meaning you will not pay capital gains tax on the sale. However, Canada Revenue Agency (CRA) rules state that if you sell any property, you must report the sale on your income tax return in the tax year you sell it.
How do I handle sentimental items I can’t keep?
For items you can’t keep while downsizing, consider offering family items, like china collections or jewelry, to family members. Additionally, you can take photos of the items to keep the memory without a physical footprint.
