Downsizing in Retirement: The Money Side and the Home Side
Henry Supinski, ChFC® with Lois Volta · 9 min read · August 2026
Downsizing gets talked about like one decision. It is actually two projects running at the same time. One is financial: what the sale does to your taxes, your plan, and your income. The other is personal: thirty years of life in a house, and the work of deciding what comes with you. Most people plan one and get ambushed by the other. So we wrote this together. I handle the money side of a downsize. Lois Volta, a household strategist in Philadelphia who runs Volta Naturals, handles the house itself.
Why This Is Harder Than It Looks
On paper, downsizing is simple. Sell a big house, buy a smaller one, pocket the difference, spend less every year on taxes, utilities, and upkeep. In practice, we both see the same thing from opposite ends: the financial decisions and the household decisions keep tripping over each other. Buy the new place before sorting the old one, and you end up paying to move and store things you never wanted. Focus only on the emotional work, and you sell in a rush and take a tax surprise you could have planned around. The two projects have to run together.
The Money Side
This half is Henry.
The tax on the sale is usually smaller than people fear
If the home was your primary residence for at least two of the last five years, you can exclude up to $250,000 of gain from federal tax, or $500,000 for a married couple filing jointly. For many families that wipes out the tax entirely. But long-held homes in this area can carry gains well past those limits, especially after decades of appreciation and a paid-off mortgage. Gain above the exclusion is taxed as long-term capital gain. Before you list the house, it is worth reconstructing your cost basis: what you paid, plus the additions and improvements over the years. Receipts from a 1998 kitchen renovation are annoying to find and worth real money.
The surprise nobody warns you about arrives two years later
Medicare sets your premiums using your income from two years earlier, and the taxable gain from a home sale, the part above the exclusion, counts as income in the year you sell. A sale that pushes you over an IRMAA threshold can raise both spouses' Medicare premiums for a full year, two years later. Sometimes that is unavoidable and worth it. But if the sale year is flexible, or if it can be a year when other income is low, the timing is worth planning rather than discovering.
Decide where the proceeds go before the wire lands
The most dangerous week is the one where several hundred thousand dollars is sitting in checking. That is when the ad hoc decisions happen. The order of operations is boring on purpose: fund the next home, set the cash reserve, then invest the rest according to the plan you already have, not a new idea. If the downsize frees up meaningful money, it may also open a window for Roth conversions or a change in which accounts fund which years.
If the move crosses a state line, the math changes again
Around here, downsizing often means a move between Pennsylvania and Delaware, and the two states treat retirees very differently. We have written about how the taxes actually differ and how to change your domicile properly. If Delaware is the destination, remember the ten-year residency clock on the senior property tax credit. One more reason the move date deserves a plan.
Sell first or buy first
Selling first is usually cleaner on the money side. You know your number before committing to the next place, and you avoid carrying two residential mortgages at once. Buying first costs more: bridge loans, or pulling from invested accounts at whatever the market happens to be doing that month. If you buy first, decide in advance which dollars carry the overlap, so the decision is not made under deadline.
There is a real case for the overlap, though, and it comes from the home side. Lois loves it when a client has a window to work with. One of her clients recently had a month where she owned the new place before leaving the old one, and they moved her in slowly, seeing what actually worked in the new home and what didn't. If your plan can carry a window like that, it buys a much gentler landing. The point is to choose it on purpose and price it in, not to back into it.
The Home Side
This half is Lois.
Downsizing can help us find simplicity, not because we are trying to own as little as possible, but because we are making room for what matters most. When we let go of things we no longer use, need, or even particularly like, our homes can begin to feel lighter and more intentional. There is freedom in knowing that the things surrounding us have a purpose, bring us joy, or connect us to people and experiences we value. A smaller home doesn't have to mean a smaller life. In many ways, it can create more space for the life we actually want to live.
What do you want your new life to feel like?
That is the first question. Before we begin sorting through what we own, it's important to think about what has mattered to us, and what we want to carry with us into our new home. Relocating gives us an opportunity to reinvent ourselves. What do we want our day-to-day lives to look like? Do we want to host more? Create a new studio or office space? Or maybe simply make life feel more streamlined, peaceful, and less chaotic?
Start with the feeling, then address what is actually in the house
Before diving in and purging everything, we need to understand what we have. What's hiding in the back of the closet? What's tucked away in the basement? Taking the time to make a plan for how you'll move through the house can help you stay on track without becoming overwhelmed or distracted. Having a solid plan and strategy also makes it easier to pick up and put down the work when you only have an hour here or there. You don't have to do everything at once. You just need to know where to begin and what comes next.
It's also important to be realistic about how much work it takes to go through an entire house before a move. Proper pacing, along with setting aside time now, can protect your new home from becoming a dumping ground for things you don't really want or need. Whether you do the work now or later, putting in the effort before the move allows you to put your best foot forward in your new home.
Choose generosity for what no longer serves you
There are many ways to approach the things that no longer serve us. Some items may be treasured by family members, while others are things we once hoped would hold value, but simply don't. That's okay. Sometimes, cutting our losses and choosing generosity can be a helpful mindset when we're downsizing.
Reselling, gifting, donating, or holding an estate sale are all possibilities. The right approach will be different for everyone. Coming up with a strategy for these items before the work begins can make the process feel much more manageable, and help create a healthier mindset as you begin.
Where the Two Sides Meet
A few places the money work and the house work have to talk to each other:
- Storage is a decision deferral with a monthly fee. A unit at $250 a month is $3,000 a year to not decide. Six months as a bridge is a tool. Three years is a leak in the plan.
- Pre-sale renovations rarely pay for themselves. Paint, repairs, and emptying the house usually return their cost. A new kitchen for the next owner usually does not. Spend where the sale needs it, not where the house deserves it.
- The improvement receipts do double duty. The sorting process is when the old records surface: what was done to the house and when. Those are the records that document improvements that can increase your cost basis and lower the tax on the sale. Good records, and knowing where they are, serve both projects. Save that folder.
- Do not fall in love before you run the numbers. The right next home found too early becomes a buy-first decision made emotionally. Know your budget from the plan before you tour anything.
A Rough Timeline
Twelve months out
Begin by deciding what you want the next chapter to look like, and roughly where you want to land. Take time to run the financial comparison of staying versus moving, including the tax implications of a sale.
Then take a good look at what you have. This is the time to start making some of the bigger decisions about what you want your new home, and your new life, to feel like. You don't have to figure it all out on your own. For some people, having an experienced set of eyes to help create a plan, ask the right questions, and keep the process moving can make all the difference.
Six months out
Create a plan for how you'll begin sorting through your belongings. Maybe you want to start at the top of the house and work your way down, or perhaps it makes more sense to begin with the low-hanging fruit: the easier rooms, closets, and categories. Sentimental spaces and overcrowded rooms can take a lot of time and energy. It's okay to get the ball rolling before diving into the hardest drawers, closets, and rooms.
After all, clutter and piles are often just deferred decision-making. It takes time to get comfortable making decisions about what is truly important, what you want to bring with you, and whether you need it in the first place. And if the process feels overwhelming, this is a great time to bring in some help. Having someone who can provide structure, perspective, and a little momentum can make the work feel lighter, and help you make thoughtful decisions without getting stuck.
On the money side, this is also the window to have the conversation with the kids about what they want, gather the improvement records that support your cost basis, and decide on purpose whether you are selling first or buying first.
Three months out
List the house and dive deeper into the purge. Start getting used to living with less and give yourself the opportunity to experience your home with more space and fewer things. You may even find yourself wondering, Why didn't I do this years ago?
Let things begin to roll out of the house so you can make room for the new owner. Whether you're selling, gifting, donating, or discarding, every item that leaves now is one less thing to pack, move, and make decisions about later. If you decide to hire a stager, you'll already be well ahead of the process. And if you've been working with a professional organizer or downsizing specialist, this is where that early planning can really begin to pay off.
This is also the moment to decide in writing where the sale proceeds go, before the closing date is on the calendar.
Move month
The moving truck should carry what you want and need into your new home, not the contents of the junk drawer that simply becomes a new junk drawer.
A thoughtful move is about more than getting everything from one house to another. It's an opportunity to set yourself up for success in the next chapter, bringing forward the things that support the life you want to live, and leaving the rest behind. You've already done the hardest part: making the decisions. Now you can move forward with a home that feels intentional, manageable, and ready for what comes next. And when the wire lands, it lands in an account with instructions already attached.
Questions We Hear
Do I pay taxes when I sell my home in retirement?
Often less than people fear. If the home was your primary residence for two of the last five years, you can exclude up to $250,000 of gain, or $500,000 filing jointly. Gain above that is taxed as long-term capital gain, and a large gain year can raise Medicare premiums two years later through IRMAA.
Should I sell my house before or after buying the next one?
Selling first is usually cleaner on the money side: you know your number and you avoid carrying two residential mortgages at once. But an overlap window, where you have the new home before fully leaving the old one, can make for a much gentler move if your plan can carry it. The key is deciding on purpose which dollars fund the overlap, rather than deciding under deadline.
What should I do with the proceeds?
Not decide in the week the wire lands. Fund the next home, set the cash reserve, then invest the rest according to your existing plan and tax picture.
How far ahead should we start?
Every move and every life transition is different, so there is no one-size-fits-all timeline, but for many people a year is a good amount of time to thoughtfully plan, sort, and prepare for a move from start to finish. Starting early gives you the space to make financial decisions, decide what you want your next chapter to feel like, thoughtfully work through your belongings, and get the help you need without feeling rushed or overwhelmed.
Lois Volta is the founder of Volta Naturals, an independent home organization and transition consultancy in Philadelphia. She is not affiliated with Blackshire Wealth Management or Wealthcare Advisory Partners, and no compensation was exchanged for this article or for referrals between our firms.