Downsizing expenses and waste: a trend whose time has come

We’ve been writing for some time about secular trends that will increasingly urge baby boomers to downsize McMansion-style homes.  Not only do people physically want less property upkeep as they age, but the drop in ‘safe’ income yields from 5 to 6% in 2007 to 1 to 2% today, has increased pressure on retirees, and those contemplating it, to reduce operating expenses and extract cash from their house asset.  Where a million in savings could pretty safely produce 50K a year of income a decade ago, today it can produce about 20k.  In other words, we need about 2.5x more savings today, to produce the same retirement income, as we did 10 years ago.  Something has to give, and it’s living expenses.

At the same time, not only do younger buyers generally lack the down-payments and income ability to buy McMansions, they also lack the interest.  Most are wisely attracted to more efficient housing with lower operating and environmental costs.

A recent survey by the Ontario Securities Commission found that 45% of pre-retired Ontario homeowners age 45 plus, are relying on the value of their home increasing from present (already lofty) levels to fund their retirement. The survey also found that while 73% of this group own homes — half of those still have a mortgage and half have no investment savings at all.

For those thinking that they will need or want to downsize their home to raise cash and lower expenses within the next 5 years, best to take proactive steps sooner than later.  See Boomers worry they can’t sell big homes when the time comes:

For owners of large homes near retirement, the best thing they can do is to close a sale while the sellers’ market is hot…

You can also invest in energy efficient and green technologies that make maintaining a large home more affordable, update the kitchens and baths, and remove the emotion from your decision.

This unsustainable era of oversized people, homes, expenses and debts is coming to a close of necessity.  The future will be leaner in every way.  And that is a good thing for those who can see and evolve their habits and thinking now.

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