Jeff Brown writes a biweekly blog about the Sandwich Generation and the financial issues its members face as they try to help their parents and their adult children. The blog appears on Next Avenue and on the website of the public television show, Nightly Business Report. A highly respected financial journalist, Brown brings personal expertise to the subject because he is part of the Sandwich Generation.
In an earlier Sandwich Generation blog post, I extolled the virtues of downsizing — selling the big family home and replacing it with something smaller, cheaper and easier to maintain. Do it sooner rather than later, I said, so the money you’ll save will have more time to grow.
But (and it’s a big but) what if you just don’t want to give up the old homestead?
You raised your kids there. Your friends are nearby. Moving to a smaller, cheaper place seems like a retreat, like giving up. Like arriving at the Last Stop, if you catch my drift.
No problem. If that's the case, I suggest a temporary downsizing.
(MORE: Are You Saving Enough for Retirement — or Too Much?)
How a Temporary Downsizing Works
A temporary downsizing is a halfway measure that can help your finances while still leaving your options open. You rent out your current place and spend a few years, for example, seeing the country in an RV, living in a cabin in the woods or trying out a thrifty condo in Arizona. After that, you move back home to live your less-active years in the community you’ve loved, among friends.
This kind of move can be ideal for people in the Sandwich Generation who might want or need to share space some day with their parents or their adult children. Chances are it would be cheaper to keep the big home you already have than to buy a new one in the future.
When my mother retired, she did a temporary downsizing and loved it. While renting out her home outside New York City, she joined the Peace Corps in Antigua for two years, where her accommodations were pretty humble. The rent she received covered the costs on her home and she was able to leave her retirement savings untouched while she was away, allowing the money to grow. Then Mom returned to the old place and had space for my wife and me when our jobs took us to the area for a couple of years.
The Math of a Temporary Downsizing
Say you have a $400,000 house in the Northeast, rent it out for $3,000 a month and move temporarily to a $200,000 Florida condo, which you either buy or rent. If you’re in your 50s or 60s, the home might already be paid for and the rent could cover its property taxes, homeowners insurance and upkeep, with enough left over to pay for much of your Florida housing costs. If you then decide to return to your house after a few years, you could do it.
If you're still paying off your mortgage on your house, you could continue to earn income during a temporary downsizing to a cheaper place and maybe even expand your employment options as a result moving to a new area for a while. Under this scenario, you could come out ahead financially, expand your horizons and continue building equity in your house.
Weighing a Temporary Downsizing
On a purely financial basis, the standard downsizing is probably preferable to a temporary downsizing. Selling a big house and buying a smaller one lets you free up your home equity and either invest any money left over from the purchase or use that cash for living expenses. With a temporary downsizing, by contrast, your home equity stays tied up.
And with a temporary downsizing, "becoming a landlord can be more complicated and more of a hassle than you expect,” says Keith T. Gumbinger, a vice president of HSH Associates, a publisher of mortgage and consumer loan information in Riverdale, N.J. The rent you receive may not cover the home’s costs, especially if you need to hire pros to manage the place and oil every squeaky hinge. You could also wind up with longer-than-expected gaps between tenants.
But a temporary downsizing has other advantages.
(MORE: Surviving Company Cutbacks on Benefits)
“On the plus side, it’s a little of column A, a little of column B,” Gumbinger says. “You are retaining a place where you have not just financial equity but substantial equity in your community — friends and family and that sort of thing. Not everybody’s ready to give that up.”
Also, the current economy isn’t ideal for a traditional downsizing.
“The real estate market is difficult today,” Gumbinger says. “You may not get the money from selling your home that you want or need. Being able to rent out your home allows you the opportunity to see your investment recover later.”
Who Should Consider a Temporary Downsize
The ideal candidates for temporary downsizing, I think, are people who:
- Can easily tolerate potential complications and uncertainty.
- Have a touch of wanderlust.
- Don’t mind playing the ups and downs of the real estate market.
A temporary downsizing is certainly not for everyone. But as you ponder the next few years and needs that could arise with your kids and parents, it’s an option to consider.
That’s what I’m doing.
I’ve got this longtime notion of building my own cabin on a hilltop somewhere in the boondocks. Although my off-the-grid fantasy could be workable in my 60s, when I get into my 70s I might prefer a comfortable three-bedroom suburban home with central heat, air-conditioning and easy access to shopping and health care.
I know just the place: the one I already have.