Currently staying in 5 room flat fully paid. Should I downgrade to new 4 room flat. Both me and my spouse are in the 50s

Yes

What's inspiring the change? E.g. wanting to cash out the sale proceeds, don't need so much space (cut down on cleaning), wanting to leave some money for sons/daughter (new 4 room HDB longer lease higher value for descendants?), moving closer to children or?

I think the above will help u make a decision. Because if the above is more/most important (now while you have the brain power) then u will make the move B4 u get older and no longer have the energy or brains to do what u want to do.

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Hope this helps

If you are ok with 4 room flat size.

Yes, get the extra cash.