How Do You Downsize Before Retirement?
Simplifying and downsizing before it's mandatory makes life after retirement easier, less costly and far less emotionally draining than if you wait until finances or health demands it. By beginning the downsizing process as early as possible, you remain in command of the decisions. In addition, you proceed in small steps and maximize tax deductions when your income is higher.
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Instructions
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Reduce the amount of items in your home, including unnecessary, dated paperwork. To protect your privacy, shred any documents first before you throw them away. Start in the rooms you use the least, working your way through the house. Sort into defined groups such as garbage, duplicates, items to pass on to friends or family, donations and items to keep. Store the items you want to keep in labeled boxes or clear plastic storage bins.
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Set parameters for downsizing. List your needs, income, health, floor plan requirements -- such as avoiding stairs -- and your ability to maintain the property. You may downsize more than once, choosing a smaller living area with less expense, maintenance or more services each time. To avoid yard work and lower insurance, utility cost and property tax, but still have your own home, a smaller one-story home with a small lot may fulfill your needs. An apartment, condominium or retirement village that provides outside maintenance for a monthly fee provide further alternatives. Retirement complexes often include community centers, pools, golf courses and other benefits, such as meals and laundry services. Ultimately, the goal is to reduce your work and expense, but still have a comfortable living area with privacy.
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Put your home on the market a year or two before you plan to retire and after you downsize the contents. Once the house is on the market, let your family know what you plan to give away so family members can choose extra furniture you're not planning to keep. If you're buying a smaller home, don't worry if you sell your home before you're ready to purchase another. Store items and rent an apartment until you find the right downsizing option.
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Eliminate a vehicle or purchase one that is less expensive. When you both retire, decide the type of vehicle you need and whether you need more than one. While you might enjoy a luxury vehicle, the maintenance, taxes and insurance can become a burden. Decide whether your after-retirement activities require more than one vehicle.
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Clean out items and donate them to charity while you're working and your income is higher. The higher your income and tax bracket, the more benefit you receive from a charitable contribution tax deduction. Don't forget to get a receipt. Take a picture for tax purposes if the item is costly.
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Tips & Warnings
When clearing out rooms, you can do as little as one drawer at a time. Schedule at least a weekly session.
The IRS recommends keeping tax-related records a minimum of three years after filing, unless you filed for a loss on your taxes due to bad debt or a worthless security. You need to keep those records for seven years. Keep records for home improvements and expenses incurred for purchase and sale permanently, or at least six years after the sale of the home.
Frequently parents have many items belonging to children not yet settled in a home. Pack those items in storage boxes and label them with the child's name.
You'll be tempted to keep many items you haven't used for years, don't. If you haven't used it in five years, you probably won't use it again.
References
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