Keeping the empty nest: The downside of retirement downsizing in a McMansion world

The nest is empty. Retirement beckons people older than 50 to downsize from the big home. It is emotionally freeing and it is the frugal thing to do. Or is it?

Anne Tergesen at The Wall Street Journal explored the problems of moving from a larger home to a smaller home at retirement: “But downsizing isn't always simple, painless — or even all that beneficial financially. With the real-estate market still fragile, many baby boomers are getting a lot less than they expected for the old homestead. All too often, they have little cash left over after buying a new place, and their monthly expenses don't fall as much as they thought — or may even rise instead.”

Tergesen also wrote about the emotional pain downsizing might cause: “They can't bear to sort through or part with all those boxes in the basement, or argue with the adult children who want to keep the house where they grew up. Sometimes they downsize only to find they miss their old lifestyle and stuff.”

“You're used to all this space,” Julie Hall, an estate-sale professional and author from Charlotte, N.C., told The Wall Street Journal, “and suddenly, it feels like you're living in a milk carton because you kept too much.”

Of course, downsizing doesn't necessarily mean a scaling back in comfort. Architect Sarah Susanka, author of the best selling “Not So Big House” series of books, writes about how people can live in smaller homes that seem bigger because the design eliminates the wasted space in homes — such as dining rooms and formal living rooms.

Buying and selling homes, though, has its own challenges. Jacob Goldstein with NPR looked at the question of whether homes are cheap right now: “Houses are much cheaper than they were six years ago. Of course, six years ago was the peak of the biggest housing bubble in the history of America. So does 'much cheaper than they were six years ago' mean cheap? Does it mean 'cheaper, but still overpriced'? Or does it mean 'about right?’ ”

Goldstein looks at two different ways to measure the “cheapness” of the market. One is the price-to-rent ratio (cost of median home divided by a year's median rent) and price-to-income ratio (cost of median home divided by median household income).

The price-to-rent ratio varies from city to city (NPR has a chart on the ratio).

The price-to-income ratio is clearer. “Now, in most places, this ratio is below its historical norm, suggesting houses are a good buy,” Goldstein writes.

Taylor Tepper at NPR notes that people are moving less than in the past: “For the most part, when people are willing to move — to find work, say — the economy is more resilient and efficient. So if people are less willing to move than they used to be, that's a bad sign.”

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