Image via WikipediaNot only is Morningstar.com is a great resource for all your investing needs, it has some great articles about the spending side of the equation. Morningstar's director of personal finance and author Christina Benz has a great article about how to reduce your housing costs in retirement. Housing costs in the accumulation years of your life can make or break the amount of money you save for retirement. It is even more critical when you are in retirement.I like the way Christina speaks of your retirement as a "work in progress". Just as in your working life you have to adjust and readjust your your savings and spending, so also you must in retirement. It's not a set it and forget it. You are regularly having to adjust your plan for what life throws at you.
One of the largest expenses we all have to deal with in our lives is the housing expense. Even cutting costs in this department can make a big impact on your bottom line. The list contains many palatable to some unpalatable choices. It's not a one size fits all choice. It also depends on how much money we have to spend. According to our income, some may have to compromise our first choices for more affordable second choices. Lets get to the list.
1. Consider a Cheaper Location. Moving is no pleasure and moving to reduce housing costs has many tradeoffs. Leaving friends and family is a big downside to moving. So is moving to a location where there is less to do. The locales with more to do usually have a higher cost associated with it. What about the overhead costs of selling your home, buying another, and all the moving expense; this may be the downside. But when you sell you may be freeing up a large amount of equity that can help in your retirement goals.
2. Downsize in the Same Location. Here we have solved two of the problems of leaving freinds and family, also freeing up needed equity. Your getting an immediate reduction in monthly expenses and still enjoying all the comforts of staying in your city.
3. Consider Combining Households. Living with your grown children or relatives will save you money in housing expenses. It's beneficial for both partys financially. But if you have any relational problems it could turn out to be a nightmare. For the seniors in the home it may be a necessity someday to have family there to look after you should the need arise.
4. Don't Pay For Care Until You Need It. A choice of living in a senior assisted living home may be right for some. As we grow older and have the need for more daily care, if your already living in a retirement community that has assisted living care available if needed may be a comfort for some.
5. Consolidate Two Homes Into One. Some of us are lucky enough to have a home and a vacation home. It may be smart to access which of these homes you can sell. Try to figure out which home is under utilized. Either sell or rent the under utilized home for a financial benefit. If you sell a vacation home you can still rent in the desired location. And you'll have the flexibility of not being locked into one vacation destination.
6. Rent a Second Home at Least Part of the Year. Make your second home become a business by renting it out all year or seasonally to supplement your retirement income. Leaving the home empty only increases the financial drain on your cash flow. Having a plan of renting it a fixed number of years, saving the income for future needs may be what's needed for a faltering nest egg.
7. Refinance. Maybe it's time to refinance. This will lower your payment and also free up cash flow for other necesities. Tking some cash out may be the right thing to do if you have some other debts that need to be cleaned up.
8. Cut Loose Your Home Equity Line of Credit. Many lines of credit have a yearly fee. If so releasing this will free up that amount of money.
9. Apply for Property Tax Exemptions and Freezes. After your mortgage payment the property tax is your largest expense. Signing up for all the exemptions, freezes, and credits you can will only add to your cash flow. Also check if your assessment is correct.
10. Contest Your Home's Assessed Value. Check to see if your tax bill refects accurately your homes actual features like square footage and amenities.
I like these tips for reducing housing costs. They should be applied also to homeowners of all ages. It should be a part of your lifelong financial planning.
For further good information check out other articles by Christina Benz at Morningstar.com
2. Downsize in the Same Location. Here we have solved two of the problems of leaving freinds and family, also freeing up needed equity. Your getting an immediate reduction in monthly expenses and still enjoying all the comforts of staying in your city.
3. Consider Combining Households. Living with your grown children or relatives will save you money in housing expenses. It's beneficial for both partys financially. But if you have any relational problems it could turn out to be a nightmare. For the seniors in the home it may be a necessity someday to have family there to look after you should the need arise.
4. Don't Pay For Care Until You Need It. A choice of living in a senior assisted living home may be right for some. As we grow older and have the need for more daily care, if your already living in a retirement community that has assisted living care available if needed may be a comfort for some.
5. Consolidate Two Homes Into One. Some of us are lucky enough to have a home and a vacation home. It may be smart to access which of these homes you can sell. Try to figure out which home is under utilized. Either sell or rent the under utilized home for a financial benefit. If you sell a vacation home you can still rent in the desired location. And you'll have the flexibility of not being locked into one vacation destination.
6. Rent a Second Home at Least Part of the Year. Make your second home become a business by renting it out all year or seasonally to supplement your retirement income. Leaving the home empty only increases the financial drain on your cash flow. Having a plan of renting it a fixed number of years, saving the income for future needs may be what's needed for a faltering nest egg.
7. Refinance. Maybe it's time to refinance. This will lower your payment and also free up cash flow for other necesities. Tking some cash out may be the right thing to do if you have some other debts that need to be cleaned up.
8. Cut Loose Your Home Equity Line of Credit. Many lines of credit have a yearly fee. If so releasing this will free up that amount of money.
9. Apply for Property Tax Exemptions and Freezes. After your mortgage payment the property tax is your largest expense. Signing up for all the exemptions, freezes, and credits you can will only add to your cash flow. Also check if your assessment is correct.
10. Contest Your Home's Assessed Value. Check to see if your tax bill refects accurately your homes actual features like square footage and amenities.
I like these tips for reducing housing costs. They should be applied also to homeowners of all ages. It should be a part of your lifelong financial planning.
For further good information check out other articles by Christina Benz at Morningstar.com
Excellent tips Dave! I would say, downsize *before* you retire rather than after. This should be a part of 'getting prepared for retirement'.
ReplyDeleteGreat article! These are things that one could possibly do and if you aren't even a homeowner yet (like myself) you could plan for the future even better. You know what they say.. "Knowledge is power".
ReplyDeleteMoney, that has to be part of the plan. Housing is the largest component of any budget, beside healthcare. A paid off house is truly the way to go.
ReplyDeleteRavi, If I had to do it all over again, I would have focused on reducing housing costs by staying small in house.