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The Upside of Downsizing

Moving to a smaller home can free up money to help you meet other financial goals. Here are four questions to ask yourself first.

AS THEY GROW OLDER, many people find that less is more when it comes to housing. They realize that they don't need the space—or they begin to doubt whether it's worth maintaining the grounds of a larger home. Others might be attracted to city living or want to try a retirement community. Beyond all of these good reasons, 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 in Personal Retirement Strategy & Solutions at Merrill Lynch Wealth Management. "Not only will your mortgage likely be lower in your new, smaller home, but your energy bills and property taxes may be smaller, too."

The windfall can be redirected into whatever area of your life you choose—bolstering your income in retirement, for instance, or helping to send your grandkids to school. But first you need to consider the financial aspects of the move. Below are four questions you should ask yourself before you make the decision.

"Not only will your mortgage likely be lower in your new, smaller home, but your energy bills and property taxes may be smaller, too."
Debra Greenberg Director, Personal Retirement Strategy & Solutions at Merrill Lynch Wealth Management

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.

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 Matt Vernon, Consumer Lending Strategy and Sales Executive, Bank of America Merrill Lynch. "There are a number of credit solutions that can potentially help you cover the cost of short-term housing."

Will my income be affected?

"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. Your advisor can help you create a strategy to draw down income from your investments as you begin a new life in your new home.

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."

3 Questions to Ask Your Advisor

  1. Would it help me more in the long run to pay down existing debt or to invest my newfound savings?
  2. Should I consider putting some of the proceeds from the sale of my home into a source of guaranteed income, such as an annuity?1
  3. What other financial moves should I consider as I think about how I want to live in retirement?

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1All annuity contract and rider guarantees, or annuity payout rates, are backed by the claims paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

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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