Housing costs can take a huge bite out of your retirement budget, but these four moves can lessen the sting.
Retirement brings an end to work for a lot of seniors, but expenses last a lifetime, and housing is most people’s biggest monthly expense.
A lucky few may have paid off mortgages by retirement so they only have to be concerned with property taxes, maintenance, insurance, and utilities. Others have all of that plus a monthly mortgage payment that could cost thousands of dollars. Some people wind up renting, giving them flexibility as to where they live and taking maintenance costs and property taxes off their plates in exchange for continued rent payments.
There’s no clear best approach when it comes to reducing retirement housing expenses, though doing so could make your retirement much more comfortable. Here are four options for you to weigh.
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1. Downsize when it makes sense
Downsizing in retirement can have multiple benefits. You may not need as large of a space as you once did, and downsizing could reduce the amount of home you must maintain. It could also reduce your costs, in some cases.
You might save on utilities because you have less space to heat in the winter or cool in the summer. A smaller, cheaper home might also cost less to insure.
Selling your current home may also make it possible to purchase a new one in cash if you have substantial equity in your current property. Even if you can’t, your new place might have a smaller mortgage payment that fits better into your retirement budget.
However, it’s important to remember that downsizing may not always work in your favor. If you live in an area where home prices have risen substantially since you first purchased your property, you might find that smaller homes with cheaper finishes actually cost the same or more than what your home is worth. In this scenario, downsizing probably isn’t your best option.
2. Move to an area with a lower cost of living
Going hand in hand with downsizing, moving to a more affordable suburb or city can be a great way to save if you’re not attached to your current neighborhood. But there’s more than housing costs to look at when evaluating this option.
Cheaper housing could be offset in some places by higher grocery, transportation, and healthcare costs. Then, there are personal factors to consider, like the proximity to hobbies or friends. Consider all these factors together before deciding whether to move during retirement.
3. Refinance your mortgage when it makes sense
Refinancing can give you a smaller monthly mortgage payment that more easily fits into your monthly budget, but it’s important to time it right. During the pandemic, homeowners everywhere were scrambling to refinance so they could lock in a low interest rate. Right now, affordable rates aren’t easy to find, so it’s not the best time to make your move. If rates drop in the future, it’s something to think about doing.
Keep in mind that when you refinance your mortgage, you’ll have to pay closing costs again. Make sure you understand how much these will be ahead of time so you’re not caught off guard. Often they get rolled into the mortgage itself so you don’t have to pay these charges out of pocket.
4. Rent your home out
Those who travel frequently in retirement may choose to rent out their homes when they’re not staying there. You could look into short-term rentals for guests in town for a few days to a week or find a longer-term renter. You might also choose to rent out a part of your home if, for example, you live in one-half of a duplex you own.
Renting out your home will help you cover the costs of your mortgage payments and, depending on what you charge, you might even earn a little extra you can put toward other retirement costs. However, you could face expenses, as well. If appliances break, for example, you’ll be responsible for repairing them. And if you’re doing short-term rentals, you’ll have to either clean and inspect the property in between visitors or hire someone to do this task for you.
This isn’t an exhaustive list of ways you can reduce your retirement housing costs, but these are some of the most common options. Consider all the options available to you before deciding which is best for you. Chances are, you probably won’t move too often in retirement, so make sure you’re comfortable with your decision before you go ahead with it.