Should You Pay Cash When You Downsize? Here Are Three Scenarios (2024)

FAQs

Is it better to pay cash for a house in retirement? ›

Some people have a strong aversion to carrying debt into retirement. If that's you, it's perfectly fine to pay cash for the home. It may be a better choice for you and your wife, even if the math works out better the other way.

While paying in cash will most likely help you save money and make fewer impulse purchases, paying in credit cards does offer an enviable convenience and allow you to afford larger items—given you monitor your spending carefully and make sure to pay off your balance each month.

Paying for everything with cash could help you spend less, because consumers are normally more willing to spend when using credit cards. You miss out on the chance to earn rewards, such as cash back or points.

Downsizing your home in retirement can reduce your housing expenses including mortgage payments, property taxes, insurance, and maintenance costs. Additionally, a smaller home often means less upkeep and maintenance, freeing up time and resources for other retirement pursuits.

Paying cash for a house means you'll have to dip into your savings or other investments and potentially spend a significant chunk of your money on a home. You'd have less cash for an emergency fund, repairs, insurance and other home expenses.

According to some experts, the optimal range for home-ownership is between 10% and 30% of your net worth. Rental properties and passive income: Rental properties are another common and attractive form of real estate.

Protect yourself with proof of payment

If you pay a bill in cash, ask the party receiving payment to record it in their records and give you a sales receipt. The receipt should show your name, a short description of the product or service purchased, the transaction date, and the amount paid.

That should include a little cash stashed in the house, enough to cover the monthly bills in a checking account, and enough to cover an emergency in a savings account. For the emergency stash, most financial experts set an ambitious goal of the equivalent of six months of income.

For goals one to two years away — or even three to five years away — it makes sense to allocate cash to make sure the money is there when you need it, according to Cox. "But anything beyond five years, I would seriously consider putting that money into stocks or other more risky assets," Cox said.

What percentage of people pay with cash? ›

In 2021, cash was used for approximately 20% of all transactions. Fast forward to 2024, and the downward trend persists, with reports indicating that cash payments now represent a mere 16% of all transactions. This significant drop underscores a fundamental shift in consumer preferences towards digital alternatives.

Although many people still say cash is king, diversifying payment methods with a mix of credit or debit cards and digital wallets gives you more flexibility. This approach ensures you're prepared for various scenarios where you might need to make payments and also means you don't need to carry large amounts of cash.

According to a Consumer Housing Trends Report, most seniors downsize at 55-years-old. For many, downsizing becomes an option once children have left the home.

Through research done by Retirement Move, we've learnt that the perfect age to downsize is 64. Downsizing at this age allows you to get the best out of your house, and means that you don't struggle with the stress and physical labour of moving house.

Paying off a mortgage can be smart for retirees or those who are just about to retire if they're in a lower income tax bracket, It can also benefit those who have a high-interest mortgage or who don't benefit from the mortgage interest tax deduction.

Short answer is no - there is not a general guide. If the home is overpriced to start with, and has been sitting. You could offer an % under asking based on where the comps say the home should be valued at - market value. The strong points about cash is no appraisal needed, and can close quickly.

Bottom line. If you can afford to, buying a home with cash can make your offer more appealing to sellers and speed up the closing process once your offer is accepted. And avoiding a mortgage means saving plenty of money in closing costs and interest over time. Plus, you'll immediately own your home free-and-clear.

For most retirees, having 1 to 2 years of expenses in cash is a prudent guideline, offering greater financial security and flexibility during retirement.