At some point, the house that once felt just right can start to feel too big—too quiet, too full of maintenance, or too expensive to keep up. Whether you’re an empty nester wondering what to do with all that extra space, a retiree looking to turn home equity into income, or a current homeowner simply craving less stress and more freedom, downsizing is a major life transition that requires careful consideration and planning.
While the idea of simplifying sounds appealing, the process can feel daunting—logistically, financially, and emotionally. That’s why it’s so important to approach downsizing with intention. With the right plan, what might seem like a tough goodbye can become a meaningful step toward a lifestyle that fits who you are now—and where you want to go next.
Financial Benefits of Downsizing
Trading a larger home for a smaller one can create real, tangible financial benefits that support a more secure and flexible lifestyle. Here are a few of the ways downsizing can positively impact your bottom line.
#1: Tapping Into Home Equity
If you’ve owned your home for a decade or more, chances are it has appreciated considerably. While the U.S. housing market has cooled from the frenzy of recent years, home values remain historically high. In fact, 2021 saw an unprecedented 18% surge in home prices—the largest annual increase on record, according to Statista—providing many long-time homeowners with a significant equity cushion.
Downsizing gives you the opportunity to turn that equity into cash by selling your current home and purchasing a smaller, more affordable one. The profit from the sale—especially if you own your home outright or have a low mortgage balance—can be substantial.
What you do with that equity is up to you. Some people choose to reinvest it in the market to generate additional income during retirement. Others may use it to pay off debt, fund travel or hobbies, cover long-term care insurance, or simply pad their emergency fund.
In other words, your home isn’t just a place to live—it can also be one of your most valuable financial assets. Downsizing allows you to unlock that value and put it to work in a way that supports your evolving goals and lifestyle.
#2: Lower Ongoing Costs
A smaller home usually means smaller monthly bills—and over time, those savings can be substantial. According to a 2022 study by StorageCafe.com, downsizing from a four-bedroom home to a two-bedroom home can save homeowners nearly $200,000 on average, factoring in everything from mortgage costs and property taxes to utilities and maintenance.
Here’s how those savings typically break down:
- Property Taxes. Because property taxes are based on your home’s assessed value, moving to a less expensive or smaller home can result in a noticeably lower annual tax bill.
- Homeowners Insurance. The cost of homeowners insurance is largely tied to the replacement cost of your home—how much it would cost to rebuild from the ground up. Smaller homes typically require less coverage, which translates to lower premiums.
- Utilities. Heating, cooling, and lighting a smaller space naturally requires less energy. Whether you’re downsizing from 2,500 square feet to 1,200 or simply moving to a more energy-efficient property, your monthly utility bills for electricity, gas, and water can shrink dramatically.
- Maintenance and Repairs. A smaller home usually means fewer things that can break or wear out—fewer toilets, appliances, windows, and fixtures to maintain or replace. You’ll also spend less time (and money) on cleaning, yardwork, and upkeep. These savings become even more significant if you opt to rent rather than buy, as your landlord or property manager is typically responsible for maintenance, repairs, and sometimes even utilities.
Over the course of a 20- to 30-year retirement, reducing your housing-related expenses by even a few hundred dollars a month can preserve capital and extend the life of your retirement savings. Plus, lower expenses can provide peace of mind, especially for those living on a fixed income.
#3: Potential Tax Advantages
In addition to unlocking equity and lowering expenses, downsizing can offer some appealing tax benefits—particularly if your current home has appreciated in value. Thanks to the IRS’s Section 121 exclusion, single homeowners can exclude up to $250,000 in capital gains on the sale of a primary residence. This exclusion doubles to $500,000 for those married and filing jointly.
To qualify, you must have:
- Owned the home for at least two of the last five years, and
- Used it as your primary residence for at least two of the last five years.
This tax break can make a meaningful difference if you’re selling a home in a high-demand market or one you’ve owned for several decades. In many cases, it allows you to walk away from the sale with a large sum of tax-free money—money you can then use to fund your next home or supplement your retirement income.
However, it’s important to note that this exclusion applies only to your primary residence—not to second homes or rental properties. Additionally, there may be other factors at play if you’ve used your home for business or rental purposes in the past. A tax advisor can help you navigate the rules and determine how they apply to your specific situation.
Potential Downsides of Selling the Family Home
Downsizing can offer meaningful financial benefits—but it’s not without its challenges. Before you make the leap, it’s wise to weigh the potential downsides that could impact both your wallet and your lifestyle.
- Moving Expenses. The costs associated with selling and relocating can add up quickly. Think real estate commissions, closing costs, packing and moving services, and potential repairs or upgrades to make your current home market-ready. If you’re buying a new place, you might also face renovation costs or recurring HOA fees, especially in condos or retirement communities.
- Market Timing. Real estate markets can be unpredictable. Selling in a slow market or buying in a hot one could limit your financial upside—or worse, leave you paying more than expected for a smaller home.
- Lifestyle Trade-Offs. A smaller home may mean less room for hosting family, storing keepsakes, or accommodating future health needs. This could result in additional costs down the road if you need to relocate again.
Ultimately, downsizing is a big decision. A thoughtful, well-informed approach can help ensure it supports—not disrupts—your long-term financial and lifestyle goals.
The Emotional Side of Downsizing
For many, selling the family home isn’t just a real estate decision—it’s a life milestone that represents the end of an era. Letting go of the space where your kids took their first steps, holidays were celebrated, and countless everyday memories were made can stir up unexpected feelings of grief, nostalgia, or even guilt.
You may also face emotional tension with family members, especially if adult children feel attached to the home or are reluctant to see it sold. Meanwhile, deciding what to keep, donate, or discard during the decluttering process can be overwhelming, especially when it comes to sentimental belongings.
It’s important to acknowledge these emotions as part of the process. Give yourself time to reflect, say goodbye, and create space—mentally and physically—for what’s next.
Here are a few tips to make the transition easier:
- Honor the Memories. Take photos of your home before moving or create a scrapbook or memory book that captures special moments. Some people even host a goodbye gathering to celebrate the role the home has played in their lives.
- Start Small. Begin the decluttering process early and work one room at a time. Let go of items that no longer serve a purpose but keep a few cherished pieces that will make your new home feel familiar and comforting.
- Visualize What’s Next. Rather than focusing on what you’re leaving behind, think about what you’re gaining—less stress, more flexibility, maybe even a sense of adventure. Downsizing can open the door to a lifestyle that’s better aligned with your current values and goals.
While downsizing can be a deeply meaningful transition, it’s one that deserves emotional care, not just financial planning.
Planning for the Future: What to Consider Before Downsizing
If you’re starting to think about downsizing, take time to assess your situation holistically. Here are a few key questions to ask yourself:
- What are my primary goals for downsizing? Are you hoping to reduce costs, simplify your lifestyle, move closer to loved ones, or all of the above? Defining your priorities will help guide your decisions.
- Where do I want to live next? Think about location, climate, access to healthcare, community, and proximity to family or hobbies. The right place can make all the difference in your quality of life.
- What type of home fits my future lifestyle? A condo with no yard work? A single-level home for aging in place? A co-housing community for social connection? There’s no one-size-fits-all answer—just what’s right for you.
- Can I afford the move—and what will it cost in the long run? Downsizing doesn’t always mean spending less. Factor in moving expenses, closing costs, furnishing a new space, and potential changes in cost of living.
TrueNorth Wealth Is Here to Help
Whether you’re hoping to simplify your lifestyle, reduce financial stress, or embrace a fresh start in a new place, downsizing can be a powerful way to realign your home with your current values—and create more space, literally and figuratively, for what matters most.
At TrueNorth Wealth, our team of fiduciary CFP® professionals is here to help you navigate every step of the transition. From running the numbers to evaluating your options and integrating the move into your broader retirement strategy, we’ll work with you to build a personalized financial plan that reflects your unique goals and priorities.
TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.
For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.
