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The upside of downsizing


En español | As you grow older, you might find that less is more when it comes to housing. You may realize that you don't need all of that the extra space, or begin to doubt whether it's worth maintaining a larger home. Maybe you’re intrigued by the idea of city living or you may want to consider a retirement community. Beyond all of these good reasons to consider downsizing, there can also be significant financial advantages.

"Downsizing can have clear benefits in addition to the profit you could receive from selling your home," says Debra Greenberg, a director of Merrill Lynch Wealth Management Personal Retirement Strategy & Solutions. "Not only will your mortgage likely be lower in your new, smaller home, your energy bills and property taxes may be smaller, too."

If you decide to sell your home, any profits you receive can be redirected into other financial priorities—bolstering your income in retirement, for instance, or even contributing to your grandkids’ college education. But first you need to consider the financial aspects of the move. Below are four questions you should ask yourself before you make this big decision.

#1) How will the move affect my budget?

"This question involves more than just the purchase price of your new home—or rental cost, if you choose not to buy," notes Greenberg. "There's the charge for moving your belongings. And you should compare the cost of living between your old and new locations." A financial advisor can help you determine what factors you might need to figure into your new budget, and how the numbers could affect your progress toward your other goals, she says.

#2) What if I sell my home before I purchase a new one?


If there's time between the closing date on your old house and the date you will take possession of your new one, you may have to find a temporary place to live. "That could create the need for short-term financing," notes Danielle Klemow, a director of Merrill Lynch Wealth Management Residential Real Estate. "There are a number of credit solutions that can potentially help you cover the cost of short-term housing."

#3) Will my income be changing as well?

"If you're moving to a new place, there's a good chance you're thinking about making other changes as well," notes Greenberg. You might be considering working less or not at all. "Make sure you're aware of how your new life might affect your income needs and long-term plans," she says. An advisor can help you create a strategy to draw down income from your investments as you begin a new life in your new home.

#4) Where can I invest the money I save by downsizing?

"Think about where the money is most needed and how it could help you pursue your other goals," advises Greenberg. "Are there any immediate needs you want to finance? Could you take a portion of the proceeds from the sale and give yourself a reward, like a vacation?" Perhaps you're thinking about starting a small business or upping your charitable giving. "You may have a smaller home now," says Greenberg, "but your opportunities have expanded."

Four additional questions to ask a financial advisor

  • Would it help me more in the long run to pay down existing debt or invest my newfound savings?
  • Should I consider putting some of the proceeds from the sale of my home into a source of guaranteed income, such as an annuity?
  • Which mortgage options should I consider if I'm downsizing?
  • How should I adapt my budget to my new housing and income situation?

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This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.

Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.

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