Thinking of Downsizing This Summer? Read This First

Downsizing can feel like a fresh start with less maintenance, lower costs, and a lifestyle that fits your next chapter. But if you’re a pre-retiree or empty nester eyeing a move this summer, there are key financial considerations to keep in mind before you sell the family home and sign on a new mortgage.

This isn’t just a real estate decision, it’s a retirement planning decision, too.

1. Capital Gains Tax: Will You Owe?

If you’ve lived in your primary residence for at least two of the last five years, you may qualify to exclude up to $250,000 ($500,000 for married couples) of capital gains from your home sale. But in today’s housing market, many long-time homeowners are realizing larger gains than expected.

Be sure to:

• Know your home’s cost basis and track improvements

• Estimate potential gains

• Time your sale smartly with income levels in mind to manage tax brackets

A big gain in the same year as other income, like a Roth conversion or pension payout, could create an unexpected tax hit.

2. Mortgage Math Has Changed

If you’ve been sitting on a 3% mortgage, today’s 6–7% rates might feel like a punch in the gut. Even if you’re buying a smaller place, your monthly payment might not shrink as much as you think, unless you plan to buy in cash.

Consider:

• Whether it makes sense to carry a new mortgage in retirement

• How a new mortgage payment fits into your cash flow

• The impact on liquidity if you pay in cash vs. financing

Sometimes, staying put and remodeling is more financially sound than downsizing. Other times, a strategic move can reduce fixed costs and free up equity.

3. Align Your Move with Your Income Plan

Downsizing can be a perfect opportunity to restructure your income strategy, especially if you’re not yet retired. You may want to:

• Use proceeds to pad your cash reserve or build your investment portfolio

• Adjust your drawdown strategy to reflect new housing costs

• Time the sale to coordinate with your Social Security filing, Medicare premiums, or RMDs

Housing changes often affect more than just your address, they touch every piece of your financial puzzle.

Let’s Make Sure It All Fits

Downsizing can be freeing, but it needs to be part of a bigger plan. Let’s walk through the numbers together, from tax projections to cash flow and future needs, so you can make your next move with clarity and confidence.

Schedule a consultation today to align your downsizing move with your full financial picture.