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Downsizing Isn't All About Stuff: It Can Be
a Smart Financial Move, Too
As people move into their 50s and 60s, priorities change. The
hours spent on home improvements and the sheer time necessary to
maintain a full-sized home seem to be a little more of a burden.
As kids move on, there's all that unneeded space.
Men and women tend to turn on the gas in the last 15-20 years
of their working lives to make sure their retirement savings
will be adequate to their needs. That's why the idea of
downsizing is a good one to start early. It's also a good time
for a financial check-up as well.
A CERTIFIED FINANCIAL PLANNER™ professional may not be able
to help you sort out what dishes and furniture to sell or give
away, but he or she would make a good first stop in developing a
complete downsizing strategy involving assets, investments,
career and overall financial lifestyle planning. With life
expectancies lengthening, many people 50-55 years of age could
conceivably be at only the midpoint of their lives.
What is the chief advantage to downsizing? Handled correctly,
it can save a lot of money. Selling a larger home — possibly one
that still has a mortgage — in favor of a smaller house or condo
that's completely paid off can save potentially tens of
thousands of dollars in interest payments over time while still
building equity. The earlier the process starts, the better.
Here's a checklist of considerations in downsizing your life:
Get advice first. As mentioned, downsizing should be a
holistic process, a chance for a check-up of your overall
finances while identifying things, expenses and habits in your
life that you can jettison. A CFP® professional can give you a
push by asking important questions that will get you to a better
place financially. It's helpful to set up a plan to extinguish
debt in all of its forms and move on to a check-up of savings,
investments and estate matters.
Downsize potential health issues. No matter what the
final effect of health reform on pocketbook issues, your
out-of-pocket and premium-based health costs over time will be
cheaper if you take steps to better maintain your health. Make
weight and other personal health maintenance issues a new
priority as you move into your pre-retirement years.
Plan for a retire-career. You might be working for a
company or organization that has a mandatory retirement age or
you have a year in mind when it might finally be time to pack up
and go. And there's nothing wrong with a retirement devoted to
travel and leisure activities. But if you think you won't be
able to afford to quit working completely or if doing nothing
will eventually drive you nuts, consider getting some career
counseling, personality testing and do some research now that
will help you train for a new full- or part-time career for
after you retire from your present job.
Start thinking about real estate and new places to live.
Today's retirees don't necessarily have to move to predictable
retirement destinations. Telecommuting allows many people to
continue working lives and education from anywhere. For many
people, the magic combination might involve cheaper real estate,
desired weather and activities, travel options and access to
good doctors and quality health care facilities. Decide what
kind of home you could see yourself living comfortably in at age
70 or 80. This combination of factors might happen in a
surprisingly large number of places based on individual
preference. To get you thinking and hone your expectations,
start with resources like U.S.
News & World Report's online "Best Places to
Retire" selection tools.
Talk to your family. It's really important to discuss
not only your expectations for later in life with your family
members, but it's important to get their feedback on what they
consider good ideas for you. There may come a day when you need
to rely on others for help, and it would be a good idea to
identify how realistic that is. Also, if you're talking about
downsizing certain assets or property that might have been in
your family a long time, it's important to discuss that with
others who might be affected by that decision.
Start weeding. Physical downsizing isn't something
that's done in a month. Give yourself a year to go through each
room in your home and prioritize what you're really going to
need if you move to a smaller place. Make a list of what you
hope to give to friends and family members and what you'll
donate or trash. Time will give you more opportunities to put
good, usable items in the hands of people who could really use
them. Develop a recordkeeping system that fits you so you won't
forget any decisions you've made along the way. Also, you might
want to set up a separate area for family photos and other
keepsakes that have high emotional value and set up a hopefully
egalitarian system for who will get what either when you move or
when you die.
Don't start upsizing later. When you do move, chances
are you will need to invest in some new household items or
possibly furniture to match new surroundings. Try to avoid going
overboard with this — that's why thoughtful downsizing should
prevent a lot of spending for stuff you've already chucked. Oh,
and make a permanent life decision if possible not to start
re-using credit cards or mortgage debt if you can possibly avoid
it in your later years.
February 2010 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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