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Does it always make sense to downsize when you retire?

For older people in America who’ve witnessed their retirement savings shrink over the last couple of years, downsizing will seem like a no-brainer. Wouldn’t going to a smaller house mean lower living costs and mortgage payments? Well, perhaps — however, professionals agree that a variety of factors, not all of them being financial, make every case unique.

Downsizing from a $250,000 home to one which costs $150,000 on average, could increase year-to-year income by $3,000 and decrease annual costs by $3,250, and save the homeowner $6,250 per year, according to the research by the Center.

Here is the math behind these numbers: Subtracting the cost of the new house from that of the old house will add $100,000 to your savings. From this, subtract the price of selling your house then moving.

Therefore, 10 percent of $250,000, or $25,000, will bring the profit down to $75,000. Utilizing the rule of 4 percent, a general rule of thumb that financial planners utilize to figure out how much retirees might safely withdraw from their savings per year, experts say $75,000 inside the bank might add $3,000 of income a year.

The Center figures out the price of insurance, taxes, upkeep and utilities at 3.25 percent of the value of the home — a number that also will vary depending on where you reside.

At this rate, household costs for the old house would be around $8,125 per year. For the smaller, new house, they’ll drop to around $4,875 per year — which results in an extra gain of $3,250 per year for an overall yearly savings of $6,250.

But, experts emphasize that this example is only hypothetical. Figuring out the costs rarely is that straightforward.

Plus, the rule of 4 percent has been recently challenged by financial specialists, which complicates the issue even further. The quantity a retiree may withdraw from savings without any risk per year might be smaller.

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