Less means more for Baby Boomers who downsize in retirement

When it comes to retirement planning, there are a lot of opinions on how much you need to save; eight times your salary  and the 4% rule are just a couple rules of thumb out there.

Equally important to a comfortable retirement is not just the money you have, but also the expenses you’re tallying up, too. And reducing your monthly bills can be a powerful tool for savers who are either behind on savings or simply looking to do more with less.

If you’re serious about cutting expenses, the most obvious place to look for savings is your home.

“Often a house is the most valuable asset that people have, so it is the source of potential wealth in retirement,” Lori Trawinski, director of banking and finance with AARP's Public Policy Institute.

However, she adds that downsizing is not necessarily right or even feasible for everyone.

“There are costs involved in downsizing,” Trawinski said, including Realtor fees and closing costs if you sell. Also, if you sell you may have to fix up your home to put it on the market, or you may need to make renovations in any new home to make it livable.

Yes, there are potential savings by moving to a smaller place, even for someone with a significant mortgage or even someone who rents. But if you’re near retirement you should do some careful calculations before deciding to downsize.

Downsizing Can Add up

Done right, there are a host of cost savings that can be found from a change in scenery. But you have to know what to look for beyond simply selling your house for more than what you paid.

“I think you have to look at it holistically, and I think it’s hard to look at any one lever to pull for savings,” said Chris Blunt, president of the investments group at insurance giant New York Life.

The good news, Blunt adds, is that a variety of items can add up to a pretty big difference in the monthly budget of Boomers who are willing to downsize. Those items can include:

• Taxes. “It’s really dramatic, where you have Florida on one extreme that has no income tax, to states like New York or New Jersey or Connecticut that have very high income taxes,” Blunt said. “A 7% swing in income tax, if you’re on a tight budget that matters.” Property taxes can also vary widely even within a few hours’ drive from your current home, and could result in hundreds or even thousands of dollars saved per year.

• Access to public transit. Being able to downsize from two vehicles in your household to one — or even none — can save you on car payments, insurance and maintenance. However, a move like that requires  Baby Boomers to downsize to an area that can keep them mobile even without a vehicle of their own.

• Health care. Many factors influence health care costs, including location and access to good doctors and specialists who are responsive and within your coverage network. “There are parts of the country with more cost-effective health care systems than others,” Blunt said. For instance, a 2015 study by HealthView Services estimated supplemental medical insurance can vary widely — with a 65-year-old in Maryland paying 72% more than one in Hawaii.

• Electricity and overhead. “With moving to a smaller home, you would expect to see lower utilities and you might see a difference in maintenance costs,” said Trawinski of AARP. And generally speaking, a smaller and less valuable home will also carry smaller insurance costs than a larger home in a similar area, she said.

Of course, a house isn’t just a place to hang your hat. Blunt adds that it’s crucial to balance your lifestyle needs with your financial ones when deciding whether to change your living situation.

“Most of us are not going to want to downsize to the point where we sit in a room and stare at the walls all day,” Blunt said.

And Trawinksi also adds that it’s important to remember apartments, condos and houses tend to be more expensive in attractive places to live, and cost alone shouldn’t be your only consideration.

“People should think about how they are going to have access to stores and doctors and other services they need,” Trawinski said. There’s also a clear link between socialization and mental health, she added, noting that “people do generally do better if they have contact with other people on a regular basis.”

Jeff Reeves is the executive editor of InvestorPlace.com.

How Moving Changes Your Finances

The National Council on Aging has an easy-to-use online calculator that can give you an estimate of your potential savings based on where you live and where you want to move.

https://calculator.benefitscheckup.org/calculators/move-or-stay-put