How to Massively Reduce Your Housing Costs Before Retirement

Entering retirement without a mortgage can help you manage costs.

A senior couple packing (or unpacking) boxes inside a house. The woman stands in front, arms crossed and smiling.
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If you want to shrink your cost of living as you head toward retirement, finding ways to spend less on housing could be your single best strategy. And if you're in your 50s, it's an ideal time to strategize about the next phase of your life.

"Housing is absolutely the huge issue," says Jan Cullinane, author of several books on retirement, including "The Single Woman's Guide to Retirement."

There are various ways to cut your housing costs as you approach the so-called golden years. A major way is to eliminate your mortgage. Even if you can rid yourself of a mortgage payment, you'll still have property taxes and insurance, and possibly homeowner's association dues or condominium common charges. There might also be assessments if your building's board hasn't stockpiled a reserve for capital improvements. So factor all of this into your housing costs as you make plans for the days when salaried income becomes a thing of the past. With that in mind, consider these three primary options: downsizing, relocating and aging in place.

Downsizing. Many people equate self worth with what they own and find it difficult to even consider selling their home, says Mary Hunt, author of "The Smart Woman's Guide to Planning for Retirement: How to Save for Your Future Today." Most people "slip into denial," she says.

[Read: How to Conduct a Long-Distance Home Search.]

It often takes a "cataclysmic event" to force you to evaluate things, Cullinane says. It could be the loss of a job, unforeseen medical expenses or just the gradual realization that your expenses are too high to allow a comfortable lifestyle.

Many people, Hunt says, make the mistake of "stripping their equity" out of their house by refinancing and taking cash out for a Disney World vacation, an in-ground pool or college tuition, only to find themselves with little or no equity left in a house. "They've spent their future," she says. "You've got to get rid of your mortgage," she says.

Hunt recently sold the house she and her husband had lived in for 27 years. Their initial idea was to refinance their Orange County, Calif., home to get a lower interest rate at 3.75 percent fixed. The new mortgage was $410,000, and the value of the house at the time was approximately $700,000. "We started to face the truth, and age, and it all collided," Hunt says. "We knew what we had to do. With a mortgage payment of $2,000 a month plus property taxes and insurance, Hunt, who has been writing the newsletter, Debt-Proof Living since 1992, found the answer for herself and her husband. "We have to sell this house," Hunt told her husband. "We can't afford it." So they did. The sale of the house was finalized in September, leaving them enough cash to move "to almost any area of the country," Hunt says. After weighing their options, and considering Phoenix and Las Vegas, the couple decided on Erie, Colo., halfway between Boulder and Denver, where they bought a less-expensive house for an all-cash deal.

"We've seen a trend of more people downsizing," says Walter Molony, an economic issues spokesman for the National Association of Realtors. In the NAR 2013 Profile of Home Buyers & Sellers, a survey of real estate buying and selling data., the market share of repeat buyers who are downsizing hit 29 percent for 2013 up from 21 percent in 2004, the first year that NAR calculated this statistic.

[See: Your 10-Step Recovery Plan.]

Relocating. If you have enough equity and are open to relocating to a less expensive market, your savings will be greater, and, your financial life easier, experts advise.

Experts suggest considering many factors when thinking about relocation. Social and psychological aspects of your life play a role in your decisions. "We have "Peter Pan" houses, and we think we're never going to get older, Cullinane says. "The status quo is easier to do nothing than to do something." In today's mobile society, people like Cullinane who have moved a number of times may no longer feel attached to a particular place. "We had lost our roots" traveling and living in different places, and "found it very energizing and invigorating to start over," she says.