One of the quickest ways to stretch your retirement budget is to shrink your housing costs. Moving into a smaller house, condo, or apartment can also reduce your taxes, utility bills, and home maintenance costs. Here are other reasons to consider downsizing in retirement:
Boost your nest egg. Cutting your housing costs is a quick way to increase your retirement savings. "Having less money locked up in your housing frees up more money to invest or just for your lifestyle," says Kathy Hankard, a certified financial planner for Fiscal Fitness in Verona, Wisc. "If you're deciding just by the numbers, it's pretty much a no-brainer to downsize." For example, if you moved from a $300,000 home with a paid-off mortgage into a $150,000 condo , you could add $100,000 or more to your nest egg, after transaction costs.
Lower your cost of living. For retirees who still have a mortgage or pay rent, moving into more compact quarters in your current town or relocating to a low-cost locale can lower one of your biggest monthly expenses. Ideally the smaller space would also cost less to heat, furnish, and maintain. Slimming housing costs will produce far greater results than skipping coffee and clipping coupons. Aim for a town that balances a low cost of living with amenities such as high-quality health care and plenty of fun, affordable activities.
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Reduce taxes. Inexpensive housing has the added bonus of smaller property tax bills. "I have clients who have saved a couple of thousand dollars per year because they have moved from an urban area with a high property tax to an area with a lower property tax and that doesn't assess seniors for school taxes," says Micah Porter, a certified financial planner and president of Minerva Planning Group in Atlanta, Ga. Taxes can vary considerably by location. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no state income tax. New Hampshire and Tennessee tax dividend and interest income only. "If you anticipate earning income in retirement, being able to forgo that state income tax could save you thousands of dollars as well," says Porter. Five states levy no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Also look for state and local tax breaks specifically for seniors who reach certain ages.
Less upkeep. Ron and Jean Mirabile, both 67, traded in a three-story townhouse with a basement in Cromwell, Conn., for a three-bedroom apartment with a lake view in Port Charlotte, Fla. The couple was looking for a change of scenery and housing that required less upkeep when they retired in 2008. "If something breaks, I call the office and the maintenance man comes and fixes it," says Jean, a former proofreader. Ron, a retired dentist who makes wooden fishing lures as a hobby, no longer needs to travel to fish. "I can take one pole and lure and go out in the backyard and fish for bass," he says. "The best things in Florida are free: The weather, the beach, and the scenery."
Slash utility bills. Cozier quarters may also result in lower heating and cooling expenses and a smaller homeowner's insurance bill. "A smaller space should save you money on utilities," says Porter. Ask for copies of the previous owner or tenant's utility bills to determine approximate monthly expenses.
Increase flexibility. Some retirees go back to renting in retirement. "Renting makes a lot of sense because there is more flexibility," says Hankard. "Most people would rather do other things with their time and money, unless they are really in love with their home." Renters can try out a few retirement locations. Sometimes priorities also shift throughout retirement. For example, immediately upon retirement, you might want to move to the Sunbelt or travel. But after a few years, you might want to move closer to your children and grandchildren.