10 Ways to Cut Housing-Related Costs in Retirement

Morningstar.com's overarching goal is to help you improve your investment results. But it's the other side of the ledger--your spending rate--that can make or break your investment plan. While you're in the accumulation phase, no decision will be as significant as how much of your income you spend and how much you set aside in savings. The same holds true for your retirement years.

That's why, during the next several weeks, I'll be discussing ways in which retirees can cut expenses both big and small. Not all of these ideas will be palatable to all retirees, and many involve some important trade-offs that could affect a retiree's quality of life. But thinking through the key variables is a valuable reminder to recognize that your retirement is a work in progress and to think creatively about your options.

Housing-related costs are often the largest component of retirees' household budgets, so this week's column will address some of the key ways in which retirees can cut costs related to hearth and home. I've ranked them from the most dramatic (and life-changing) ways to cut costs to those that have less of an impact.

1. Consider a Cheaper Location
Talk about trade-offs: The decision to relocate is a biggie, particularly if it means venturing away from kids, grandkids, and longtime friends. It's also worth noting that the highest-cost housing markets also tend to be close to other amenities that may be important to a retiree's quality of life, such as cultural and leisure attractions. But if you reside in a high-cost locale and are assessing how you can make your nest egg last, relocating ought to be high on your list of considerations.

By selling your high-priced home and moving to a cheaper location, you may be able to unlock a significant amount of equity while also reducing your housing costs on an ongoing basis. (Just be sure to assess the true costs associated with relocating, especially if your plan entails buying and selling properties--as well as the travel costs of going back and forth to visit friends and relatives.) This article discusses some of the best cheap places to retire in the United States and this one looks at retirement outside of the U.S.

2. Downsize in the Same Location
If you're not up for relocating, you might still be able to save money by downsizing to a smaller home in your same geographic locale. Like relocation, this decision usually doesn't come without compromise: Many people have a sentimental attachment to the homes in which they raised their families, and after a lifetime of accumulation, a move across town may seem like more trouble than it's worth. And if you stay in the same geographic locale, your nonhousing costs--food, entertainment, and the like--will stay the same. But even within a depressed housing market, you may be able to unlock valuable equity by selling your larger home, and your ongoing costs--for taxes, maintenance, and utilities--are also likely to be a lot lower.

3. Consider Combining Households
Thanks to the economic downturn, there's a well-documented trend toward children remaining with their parents for a much longer time than in the past, as economist Karl Case discussed it in this video. (Parents of new--or not-so-new--college grads, you know what he's talking about.) But I think we'll also start to see more people combining households later in life--grown children moving in with elderly parents, retired siblings moving in with one another, and so forth. Of course, such setups sound a lot simpler than they are in practice, but consolidating what would've been two households into one can help reduce costs greatly.

4. Don't Pay for Care Until You Need It
Seniors are increasingly gravitating to so-called continuous-care retirement communities, which allow them a great amount of independence as long as their health allows but also provide for ongoing health care and other assistance later in life. Such facilities allow seniors to transition from one life stage to the next with a minimal amount of disruption--a huge attraction given the upheaval that often occurs when seniors move from an independent home to assisted-living to a hospital and back again. Retirees may also take comfort in moving into a continuous-care facility before they actually need any type of care, thereby relieving themselves and their loved ones from scrambling to find the right living situation when a problem arises.

As sensible as such arrangements are, however, they carry significant costs. If you've run the numbers and think there's a significant risk you could outlive your assets, a continuous-care retirement community may entail more costs than you can afford to bear, particularly if you don't yet need any help. The decision to move into a continuous-care community is a hugely complicated one that should entail a full cost-benefit analysis; this article details some of the key considerations to bear in mind before forking over a large sum to enter such a community.

5. Consolidate Two Homes Into One
For many affluent retirees, owning two homes--one in the large urban center where they lived and worked and one in a resort setting--is a lifelong dream. But it's also a costly one, especially if one of the two homes is sitting vacant for much of the year. (In my experience, this is frequently the case for older seniors who own more than one home.) If you're a two-property owner, conduct an honest assessment of how much time you spent in each of your homes during the past few years. If your time allocation skews dramatically to one locale, do the math on whether it makes sense to sell the underused property and rent (or stay with family or friends) in that same location instead.

6. Rent a Second Home for at Least Part of the Year
Alternatively, retirees who own a second home exclusively for their own use might consider renting it out for at least part of the year. Although you won't unlock equity, and you may have to pay additional costs for maintenance, rental agents, and cleaning, you will likely improve your in-retirement cash flows.

7. Refinance
One of the best financial steps you can take in the years leading up to retirement is to pay down your debt because reducing your fixed costs in retirement will reduce the income demands you make on your portfolio. But if you still have a mortgage and are preparing to retire or you're retired already, refinancing ought to be on your radar. Mortgage rates have ticked up in recent weeks, but they're still ultralow relative to long-term averages. This article discusses some key dos and don'ts for mortgage refinancing.

8. Cut Loose Your Home Equity Line of Credit
Many households maintain a home equity line of credit as an emergency backup in case they exhaust their emergency funds; it's a cheaper form of financing than most other consumer credit types. But if you haven't used your line for several years and don't anticipate using it anytime soon, check with your lender to see whether you're paying ongoing maintenance fees to keep the line of credit active. If you are, cutting the line could save you at least a small sum.

9. Apply for Property Tax Exemptions and Freezes
Property taxes are one of the biggest line items in many retirees' budgets. And while those taxes have remained stubbornly high in many communities despite declining property values, you may have some latitude to get them lowered by applying for senior property tax assistance. Such programs take various forms depending on where you live--freezes, credits, exemptions, or rebates--and your eligibility may hinge on your income level as well as the number of years you've lived in your home. But if you'd like to remain in your home but consider your property taxes unaffordable, hop online or check with your local assessor's office to see what assistance programs are available.

10. Contest Your Home's Assessed Value
In a related vein, you may also be able to obtain property-tax relief by contesting your home's assessed value. Start by scrutinizing the information about your home on your property tax bill and take note of any discrepancies with your home's actual features. Does the assessor show the correct square footage and number of rooms, bathrooms, and fireplaces?

Even if this information is correct, you may be able to prove that the property taxes for your home are too high relative to other homes in your community with similar amenities. Public records about home amenities, tax rates, and sales prices are widely available online; your local assessor's office should be able to walk you through the steps to take to formally contest your home's assessed value, which in turn could buy you some tax relief.

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