It's a word that's long been part of the American lexicon and should come into even sharper focus as Baby Boomers age and more and more retire.
The conventional wisdom has long been that downsizing is appropriate at some point as we age and are no longer comfortable taking care of the larger home we raised our family in. After all, why do people need all that space once the kids are out of the house? And doesn't it make sense to have a smaller home or even a condo to save money during retirement?
Conventional wisdom isn't always right, however, and more and more experts are saying to forget downsizing - or at least realize that it isn't always the best strategy that some make it out to be.
"It's not a panacea," says Brent Neiser, senior director at the National Endowment for Financial Education. "It's not going to solve a problem [that's already there regarding] health, [relationship issues] or cash flow."
Neiser says that if someone has a reverse mortgage in place and is drawing funds from that, the loan would have to be repaid if the owners sold the home to move. By opting to move out of a home that's already paid for, people are forgoing a chance to draw income from the home by obtaining a line of credit through a reverse mortgage.
Even though using a portion of the proceeds of a home sale to buy a smaller home and paying for the remainder using a reverse mortgage is a downsizing option for some - consult a financial advisor first. Because one thing's for certain: Downsizing isn't always the best strategy.
Some financial advisors suggest that downsizing is only worth it if you save at least 25 percent of what you spend currently. Keep in mind, you'll need equity for moving expenses and real estate commissions.
"Downsizing is a big decision, and there are a lot of costs associated with that," Neiser says. "In some cases, costs may not go down but up. It's important with a partner or spouse to take some time and do some financial inventory. A lot of it is the cash flow. Start by identifying what it's costing you to live there. You may have some myths in your head about what that is. Even if you're facing certain renovations down the road, some of those are one-time costs."
When considering downsizing, Neiser says it's vital to identify what potential ongoing costs would impact your cash flow. That's utilities and taxes, along with HOA and other association fees. Some of those are costs that you might not have now, Neiser says.
"You may now have minimal HOA fees and if you go to a smaller setting like a condo, townhome or patio home, you may be subject to monthly, quarterly or annual costs that you have never had before," Neiser says. "Many of these are out of your control. You don't control either the timing or the possible rate of increase. If I go into a condo and I want an extra parking spot, am I going to have to pay for that?"
The group setting is often associated with downsizing because a lot of people don't want to do a lot of maintenance, Neiser says. One of its features are assessments, unlike their existing situation where they control the costs if they own a duplex or single-family home, he says. People know what expenses and repairs they need for their own home or learn about them when they put the home on the market.
"As far as other maintenance costs, I'm the master of that ship," Neiser says. "But in this group setting, assessments can come in where they need to reroof the complex. Under the agreements you signed going into that, you say that you will participate in those. Those will hit you at times when you're not aware. It's one of those points of consideration that's very sobering to think about."
And that's not all.
If you're still working, you also need to look at how moving changes your commute to work and how close you are to your children, church or temple, he says. People need to consider how it changes their social environment as well.
"You have a whole number of considerations if downsizing results in a significant relocation and importance of social network as people as age," Neiser says.
What happens when you've weighed the pros and cons, and you do decide to downsize? Neiser suggests people "test drive" their decision before making any permanent move. If you bought a property and a health issue popped, or you couldn't handle the weather, it's hard to recover your cost. And if you make a house purchase, depending on the real estate timing, if you have to sell in a few years, you would barely break even with the transaction costs, he says.
"Financial advisors urge people to go live in an area either by renting a home or a condo for the short term to sample it, and you should think about going during the worst climate of the year. That means hanging out in Phoenix in the summer to see if you like it. "
Whatever you decide, Neiser says any decision on downsizing should be a drawn out and thoughtful discussion and not something done over the weekend.
"It's like a negotiation between spouses," Neiser says. "I can't underestimate the family and social impact of the decision. This is where you don't want to jump into it. If your marriage is shaky, downsizing may not fix that problem. It forces you into closer proximity and might exacerbate the problem."