Planning Your Retirement: 9 Ideas to Reduce Your Housing Costs

Last Updated Jun 24, 2011 5:03 PM EDT

Housing costs are one-third of the average American household's budget, the largest monthly expense for most families. And since reducing living costs is the most common way to make ends meet in retirement, it makes sense to take a hard look at your housing costs.

Welcome to Week Nine of my series, 12 Weeks to Plan Your Retirement. Since most Americans have insufficient savings to fund a traditional retirement, they'll need to look for creative ways to make every dollar count, and finding resourceful ways to lower housing costs will help.

Here are nine ways to pare your housing budget:
  • Downsize to a smaller house, with reduced bills for utilities, maintenance, and property taxes. You might also be able to realize some home equity that can be invested to generate retirement income.
  • Move to a less expensive part of the country. There are a number of Best Places to Retire sites that you can review some to give you ideas.
  • Move to another country with dramatically reduced living costs. Panama, Costa Rica and some South American and European countries consistently show up on lists reviewing best places to live abroad.
  • Rent out a room or two for additional income. This solution works best if you don't want to move and have a large house. After my daughter graduated from college, she rented a room from a retired couple for a year. It was win-win situation: My daughter had inexpensive housing, and the couple realized some extra spending money.
  • Share housing with other retirees - the Golden Girls solution. Not only will you share in the cost of housing, but you can also realize savings in regards to your insurance, utilities and even food. Obviously this option isn't for everyone, but don't dismiss it without thinking it through.
  • Consider a reverse mortgage to help you generate retirement income. This solution works for people who own their house and plan to stay for many years. If you didn't or don't plan to buy long-term care insurance, however, I prefer that you keep your home equity in reserve for a day when you could face high bills for long-term care.
  • Move in with one of your children. Of course, this solution is fraught with emotional issues. Of critical importance for you: How can you make your presence a help to your child's family, instead of a burden?
  • Sell your home and rent something that better fits your needs, such a place with less square footage or one that's part of a senior community. You can use a buy vs. rent calculator to analyze this possibility; these calculators compare all housing costs when either buying or renting, including the best use of the assets you'd apply for a down payment on a house, and your expectations for rent increases and home appreciation. To analyze this solution as a retiree who currently owns a home, estimate the amount of money you'd realize from selling your house, after subtracting selling costs, and use that as the theoretical down payment on a smaller, downsized house. Then compare that option to the cost of renting a home or apartment. A simpler approach would be to just compare your annual cash flow now to the cost of renting; in this case, be sure to include the retirement income that might be generated by the home equity that you realize. Of course, the feasibility of this solution depends on that old real estate adage -- location, location, location -- as indicated by this creative buy vs. rent map.
I realize that some of these ideas may not work for everybody, or they may not be desirable. For example, not many people will want to live abroad, and many will want to live close to their children (but maybe not too close!). Or you might find it undesirable to share housing. But if you reach retirement age with inadequate savings for a traditional retirement, you don't have many choices: You'll either need to keep working, reduce your living expenses, or work out some combination of the two.

I'd encourage you to do some hard thinking about your housing costs now, rather than simply stay in your current situation, hoping that somehow things will work out. Too often I've seen retired couples stay in their homes too long, and then get in a situation where they start to make decisions in a panic.

I've also seen people stay too long in their large house in the suburbs where they raised their family. While I can understand the emotional comfort that gives, the unfortunate result is that you can become trapped in a house that's too big, isolated and lonely, as you're less able to get around. It's best to move before it becomes very difficult to move.

I'm always impressed with the creativity of our readers, so if you have helpful solutions to share, please add them in the comment section below.

As with the other steps in this series, it will most likely take more than one week to investigate your housing options. But get started today, and you'll make great progress. You'll feel more confident in your ability to retire as you investigate various ways to make ends meet. And keep in mind that ultimately, the best place to retire is where you'll be happy and comfortable.

Image from iStockphoto contributor STEVECOLEccs
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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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