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Downsizing can free up funds for your retirement and cut down on day-to-day expenses. But do the pros really outweigh the cons?

Ask anyone who’s approaching retirement what their view is on downsizing and odds are they’ve given it some thought at one point or another.

The preference may be to stay in their family home as long as they can. However, downsizing can be a very appealing option to free up funds for retirement and cut living expenses, for the average homeowner who has been paying into a mortgage for years and building up substantial equity.

Yasmin Musani, head of retirement and successful aging strategies at RBC, says that downsizing is a common topic that comes up with clients nearing retirement. But before moving to a smaller house or condo, pre-retirees need to think about both the lifestyle and financial implications of such a major move.

“We ask clients to take a step back and consider what it is they want from their life in retirement,” explains Ms. Musani. “We start with ‘How do you want to spend your time?’ This also gives them a sense of where they want to live in retirement and whether or not they’re ready to downsize.”

When it comes to the financial considerations of downsizing, Ms. Musani recommends considering whether the move is actually financially beneficial. “The initial thought is ‘I’m going to reduce my expenses,’ but this may not always be the case.”

The first step is for pre-retirees to have a really clear idea of what it costs them to run their life now, advises Ms. Collacut, and they should also thoroughly research the potential costs of the new home they are considering.

Karen Collacutt, a money coach based in Barrie, Ont., agrees that downsizing is a hot topic with people who are approaching retirement, especially those who plan to travel a lot.

“I have a client who has actually just sold her home and moved into a condo,” says Ms. Collacutt. “She spends three months a year in Florida and another two months in Germany, so having a condo, where she can just lock the door and leave, is so much easier than a house with a yard and all of that.”

Meanwhile, on the money side, the benefits can be substantial, notes Ms. Collacutt. “When you sell your home and buy a smaller house or a condo, the idea is to be able to pull the equity out and have that as ready cash available for your retirement lifestyle and to also reduce the day-to-day costs, so what you’ll be needing to draw from your retirement income is less.”

However, she cautions that the plan to end up with a large chunk of money to invest doesn’t always go as planned. Related expenses can take a serious bite out of any profit from the sale of your house.

To help ease the financial pain of downsizing, Ms. Collacutt suggests putting money away in a “moving fund” to cover expenses like closing fees and real estate commissions, condo fees and land transfer taxes, “so the equity in the house is actually equity in [your] hands.”

“Also, often people are not ready to let go of all their stuff,” she adds. “They end up with a storage locker full of stuff, paying $100 or $200 a month, which they hadn’t anticipated.”

The first step is for pre-retirees to have a really clear idea of what it costs them to run their life now, advises Ms. Collacut, and they should also thoroughly research the potential costs of the new home they are considering. “And then they need to do a post-move projection based on the research they are pulling, so they can really compare apples to apples,” she says.

And if you’ve got the flexibility, rent in the new area to see if you like living there.

“I have clients who sold their farm and are renting in the community [where] they’re looking at buying in about 12 to 18 months, so it gives them lots of flexibility [and] they’ll know for sure they are going to be happy in that size of house in that neighbourhood,” says Ms. Collacutt.

Ms. Musani agrees on the usefulness of a “test drive” of a prospective neighbourhood, at different times of the day and night. “I remember talking to a client who went to see a potential neighbourhood in the daytime. It seemed very quiet and lovely, but when she went there in the evening, she found social aspects that weren’t what she had in mind.”

It’s also important to discuss downsizing with your financial planner before making any decisions, so you can explore how this fits into your overall financial plan, adds Ms. Musani.

Once you have a clearer vision of your retirement priorities, a financial planner can help you assess your downsizing options.

This article originally appeared in the Globe & Mail in January 2016.