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The Big Move: My husband and I owe $87,000 on our mortgage and have $400,000 in savings. Should we sell our home now to prepare for retirement?

Dear MarketWatch,

My husband and I are unsure if we should downsize now or wait for housing prices and our debt to come down.

We are recent empty nesters at ages 62 and 68, and both still working full time with an annual net income of $190,000. We have owned the home for over 20 years and the estimated value a few years ago was about $400,000. After a refinance our mortgage balance is $87,000, an equity loan balance of $40,000, savings account of $140,000 and we have only about $260,000 in retirement accounts.

I would really like to downsize soon and not try to continue maintaining this nine-room home. It is an older home and both the heating and utility expense is very high, not to mention that the maintenance is becoming very time-consuming.

I would rather not stay in this home without being able to keep up with it and therefore getting less money when we do sell it.

Most likely if we were to sell now then we could do so at a higher price than ever but we will also have to buy a home at a higher price and could end up being upside down.

Is there a formula for when it’s a good time to downsize? We could use any advice you could give us on downsizing in the current housing market.

Sincerely,

Dreaming of downsizing

The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at TheBigMove@marketwatch.com.

Dear Dreaming,

It sounds like you and your husband have crossed what some have called the “Freedom Threshold.” The choice of where you live is no longer necessarily dictated by things like family or work obligations, meaning you have the freedom to rethink your living arrangements.

It’s an exciting — and challenging — time for anyone nearing retirement age. And I think you’re already off to a great start by approaching this decision carefully and rationally, rather than emotionally.

People downsize for all sorts of reasons — many times retirees aim to free up some of the equity they’ve earned over the years to spend in retirement. Others, like you, are worried about the onerous responsibility of maintaining a large home at a time when one’s physical health may begin to deteriorate.

Plus, homeownership doesn’t always come cheap. It’s always a good idea to reassess your financial responsibilities, especially when you’re closing in on the time of your life where you will transition to a fixed income. Run-ups in the cost of heating and gas, like many Americans have witnessed these past few weeks amid the war in Ukraine, can be especially difficult for retirees and other folks with limited financial resources to weather.

You’re right to be cautious about downsizing. “Downsizing is a very popular concept, but often easier said than done,” said Sean M. Pearson, a financial adviser and associate vice president with Ameriprise Financial based in Pennsylvania.

Also see: ‘Where should I live and what am I going to do?’ Retirement advice we’re not getting from financial advisers

On the surface, you’d figure that moving to a smaller home will come cheaper. But Pearson likens it to buying a new car: We might want one upgrade, such as heated seats or a rearview camera, but those bells and whistles often come as part of a larger package. And that package tends to be more expensive.

As Pearson suggests, you need to do more soul-searching and ask yourself questions like, “Are you looking for something smaller, or are you looking for something cheaper?”

“There is likely not going to be a duplicate of your house, with a few less rooms at a cheaper price in the same neighborhood, much less near all of the fancy shops and restaurants,” he said.

For many retirees, location is important. Being somewhere walkable can be useful if you find yourself unable to drive in the future. Likewise, many prefer to live in senior living or retirement communities. But those homes can cost more — not to mention all the ancillary costs that could be involved, such as HOA fees.

“‘There is likely not going to be a duplicate of your house, with a few less rooms at a cheaper price in the same neighborhood.’”

— Sean M. Pearson, a financial advisor and associate vice president with Ameriprise Financial

Before you get ahead of yourself, you should sit down with a financial adviser and create a roadmap for you and your husband. “Once you have a retirement plan to downsize, start budgeting how much you’ll need to get by,” Gary Marriage Jr., founder and CEO of Nature Coast Financial Advisors, wrote in this blog post. “You may need some help to do this but it is worth planning out the money you will need for retirement in order to see the potential for downsizing and the choices you have.”

As much as we’d like to time the market, it’s not feasible for many of us. Your current home may not be affordable to you as it stands — and you wouldn’t want to put off moving simply out of fear of a potential future downturn.

So determining what you can afford is an important starting point, especially in as competitive a housing market as this one. If you have enough equity built up in the home and can afford to make your monthly payments, you’ll be in good shape even if home prices fall. Even if there weren’t questions about the housing market, you’d need to ensure that you would be prepared for any potential hiccup so that you wouldn’t risk going into foreclosure.

While you’re working on developing that financial plan, take steps to ensure that you’re well prepared to pull the trigger when the time comes to do it. Start going through your belongings and figuring out what you’ll take with you if you move into a smaller home. That will help you feel like you’re making meaningful progress toward this goal, and save yourself unnecessary stress down the road.

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