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How to Massively Reduce Your Housing Costs Before Retirement

Harriet Edleson
FILE - In this Wednesday, Sept. 18, 2013, file photo, a "For Sale" sign hangs in front of a house in Walpole, Mass. Standard & Poor's/Case-Shiller reports on U.S. home prices in September, on Tuesday, Nov. 26, 2013. (AP Photo/Steven Senne, File)

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.

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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.

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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.

She and her husband made their most recent move from Cincinnati, Ohio, to Hammock Beach, Fla., a planned community seven years ago, and are enjoying their new life.

She advises people to consider transportation, medical care, political and religious aspects, and universal design - which is a set of principles that make your home easy to access no matter what your age, size or abilities - in making a move. In addition, make sure the doctor you plan to see when you relocate will take Medicare if you are already 65 and receiving it.

According to NAR, as of November, the five most affordable metro areas were Toledo, Ohio, with a median single-family price of $87,500; Rockford, Ill., at $88,900; Decatur, Ill., $91,000; Ocala Fla., $103,600; and Topeka, Kan., with a median price of $106,900.

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Senior living may not appeal to people with an active lifestyle, who are still working or who don't want to live surrounded by only those 55 and older. If you've lost your spouse or prefer a social environment to a single-family home, senior housing can be an option. It can be a retirement community, independent living or, for those with health or mobility issues, assisted living. Fourteen percent of recent buyers past age 50 bought a home in senior-related housing either for themselves or for a friend or relative, the NAR report said.

Aging in Place. Don't want to move? If you're going to age in place, think about universal design, Cullinane says. Will you be able to climb the stairs as you age in your existing house? Can you afford the cost of installing an elevator? Unless you can pay down your mortgage, this option won't decrease your housing costs.

"Whether you decide to move or stay, find ways to make your home easy to access no matter what your age, size or abilities," Cullinane says. Think in terms of a first-floor master bedroom, which may mean moving your bedroom to the lower level of your current home.

Other features that are useful are non-skid flooring, curbless showers, task lighting in work areas and a bar in the shower. More elaborate features include lever or pedal-controlled handles for faucets, a ramp to the doorway if needed, covered carports and boarding spaces as well as well-lit hallways.

As you approach retirement, it's useful to begin thinking about your living expenses, especially the cost of housing as it tends to be the largest expense you'll have. If you're ready for adventure, you may just be a candidate for selling your home and buying in a less expensive market. It'll save you money, and might just inspire the kind of change you desire.

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