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Wondering what the unknown gotchas that would be involved in my selling my home and with the profits, buy a smaller one for cash to avoid mortgage payments. Some info: I live in California, U.S.A.; I will begin drawing SS in about 8 months and don't foresee uncovered medical expenses due to medicare; my wife is (don't tell anyone) ~61 and can begin drawing SS at 62 -but not medicare. So far, I know I have to pay: Medical for my wife, House and Car insurance, Property taxes, day-to-day living expenses. Bottom line, is it advantageous to follow through with the above plan? I have ~200K available after moving into the new home and monthly income from SS will be ~2400 (3900 after she retires).
Thanks in advance for your thoughts and comments.

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    "I have ~200K available after moving into the new home" - Does this mean you'll buy the new place with cash, and still have $200K? What is your age? – JTP - Apologise to Monica Apr 29 '17 at 17:36
  • Yes, I would sell my current home, clear ~250K and with that, buy a smaller one for that amount. And yes, I still have ~200K in my 401k and other savings. I will turn 66 in Jan 2018 – Sam D Apr 30 '17 at 6:31
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I am going to answer the question you didn't ask. The timing of Social Security. enter image description here

Your benefit at 66 will be $2400, $3900 for the 2 of you. If you delay one year, you will see a bit of COLA (cost of living adjustment) as well as an 8% bump. That's $312/mo. ($3744/yr) The "cost" of this is not collecting that $46800. This, in effect, is an 8% return on that $46,800. Of course, per the chart, the 8% bump is for each year delayed until age 70.

For many people who have a bit more saved, this strategy will help avoid the taxation of Social Security benefits, a convoluted process where, if 1/2 your SS benefit plus other income exceeds $32K, the benefit starts to become taxable. I wrote about this, with a chart to illustrate, at The Phantom Couple’s Tax Rate Zone. In your case, it looks like you'll stay under that level, unless you take a large 401(k) withdrawal for whatever reason.

Aside from this suggestion, the plan looks very sound. I've often written that a house shouldn't be considered an investment, up until the moment you downsize as you propose to do.

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Assuming you WANT to move into a smaller, more manageable house; then the only real financial pitfall I could see would be to consider any capital gains you might have to account for if you're selling your current property for more than you paid for it.

Since you're willing to move into a smaller house, and have plenty of reserve funds, there shouldn't be too many other financial hurdles or potential pitfalls.

That said though, when it comes to moving, there are so many personal factors that often weigh more than the financial ones. Do you want a smaller house? Do you have the capability to handle a move? Are you at a point in your life where you want to dedicate time to getting settled for retirement? If the answer to all of those questions is yes, then it makes perfect sense in my opinion.

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    There's 2 of them, the first $500K of gain isn't taxable. – JTP - Apologise to Monica Apr 29 '17 at 18:56
  • That sounds correct. But aren't there some other conditions like living in the home for a certain amount of time? – Keith Apr 29 '17 at 19:26
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    Since he talks about a decent gain, I assume he's there at least 2 years. Sounds like much longer. – JTP - Apologise to Monica Apr 29 '17 at 19:27
  • Thanks Joe and Keith; yes, I've lived in my home for ~15 years, I can make a tidy 250K when I sell it. I can handle a move, though 65 I am pretty strong and healthy. And no, I will not stay 'retired'; I have good computer skills that I know I can market, if that doesn't pan out, then I can do some import/export business as well. – Sam D Apr 30 '17 at 6:31
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    then the only real financial pitfall I could see would be to consider any capital gains you might have to account for if you're selling your current property for more than you paid for it. In California, property taxes are sort of fixed for homes you've owned for a long time. It's possible (likely?) the OP will actually have an increase in property taxes if they downsize given they've lived there 15 years. – enderland May 1 '17 at 13:18

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