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Planning your retirement: 10 ways to reduce housing costs

(MoneyWatch) Housing costs make up 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 and what you can do to reduce them.

Welcome to Week 12 of my series 16 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 10 ways to pare your housing budget:

-- Pay off your mortgage before you retire or shortly thereafter. If you're several years away from retirement, consider refinancing with a 15-year fixed mortgage. Interest rates are near all-time lows.

-- 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 location that enables you to reduce other costs, such as transportation or health care. This could mean moving out of the suburbs and into a city.

-- Move to a less expensive part of the country. There are a number of "best places to retire" websites that you can review to give you some ideas.

-- Move to another country with dramatically reduced living costs. Panama, Costa Rica and some South American and European countries consistently show up on review lists of the 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 a win-win situation: My daughter had inexpensive housing, and the couple earned some extra spending money.

-- Share housing with other retirees -- what I like to call 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 advise keeping 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 versus 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.

I realize that some of these ideas may not work or be desirable for everybody. 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'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 one where you'll be happy and comfortable.

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