If you are amongst the millions who have an extra bedroom or two, the thought of downsizing the home seems to be “the” topic at backyard barbeques. Now that the kids are grown and gone, or almost gone, you may be asking why you should continue to pay the property taxes, heat and other costs associated with maintaining a sizable family home.

Some do have reasons why they plan to maintain the sizable home.  These reasons include visitors, including grandchildren on a frequent or lengthy basis. Others include the personal touch and special features that uniquely define who you are.

But for many, the thought of doing it over again, with a home in mind for their current lifestyle desires is quite appealing.  In the course of financial planning for such families, there is frequently an association with lowering your cost of living when it comes to downsizing. The reality, however, is that many end up spending the same amount on a new home. The new home may be smaller, but it is likely to have some of the creature comforts that are impractical in a home raising children. Instead of play rooms and kids bedrooms, you are adding features like ponds, fancy in home offices, outdoor kitchens and living areas, and media rooms that challenge the look and sound of any first class theaters. And these creature comforts cost a lot more money than the basic and durable areas built for children.

Even if having a house that feels like a resort is not part of your downsizing plan, perhaps that newer simpler home will be accompanied by something in Florida or on Cape Cod? This too can be an unknowing budge buster. Purchasing two homes for the combined cost that equals that sale price of your family home sounds like a plausible way to deploy your sale proceeds.  But what may take you by surprise are the maintenance and updating costs to keep both homes up to a standard that you expect at this stage of your life.

The message here is to look at your home as a use asset, and not an asset that is available for retirement.  Most financial planners are trained to look at equity value in the home as an asset that is there to be taxed in your estate, but not one that should be relied upon as a way to fund living expenses later in life.  If you find yourself in a position where you simply need to convert some of that equity into cash or cash flow, call your friendly banker or mortgage broker to see how they may help.

If you are successful at downsizing and down costing, then you may have some extra discretionary cash flow to do other things, whether they include travel, social clubs or other expensive ways to spend your free time. For many, this is their vision of how to live life on the back nine. But for planning purposes, ask your financial professional to forecast a few scenarios that include down costing and not down costing.

John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA.  Visit napierfinancial.com for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investment and financial planning advice offered through US Financial Advisors and Great Valley Advisor Group, Registered Investment Advisors.

By John P. Napolitano CFP®, CPA, PFS, MST Founder & Chairman Read More