Housing is the biggest monthly expense for most American families. Paying the monthly housing bill is painful enough during our working years, but it can be downright torturous in retirement. A mortgage payment can easily wipe out a monthly Social Security check, and most people have only a small amount of retirement savings beyond that. So it's imperative that we figure out a way to reduce our housing costs after retirement. Here are some ways to reduce your monthly housing bill:
Pay it off. The best option is to get rid of your mortgage payment entirely. Figure out your retirement date and time your mortgage payoff date to a similar time frame. It's not easy to come up with the money to make extra payments on your mortgage every month, but imagine how great it would feel to not have to write that check anymore. Retirement would be a lot easier without a big mortgage bill to pay every month, and you get the extra satisfaction of truly owning your home outright.
Rent out spare rooms. Once the kids are out of the house, there will be plenty of spare rooms in your home. One easy way to generate a little extra income is to rent out a room or two. You'll need to screen your prospective tenants really well, though, since they will be sharing your roof. (Related from U.S. News: 10 places to retire on Social Security alone.)
Downsize to a smaller home. Why do you need a big house after retirement? Why not move to a smaller condo or townhouse instead? If you have some equity in the home, you may be able to reduce your mortgage bill significantly by moving to a smaller place. There will be less space to maintain, too. (Also from U.S. News: Best places to retire for under $40,000.)
Refinance. If you really love your current home and moving is the absolute last resort, then perhaps you can consider refinancing into a 30- or 40-year fixed-rate loan right before retirement. If you have built up equity over time, then refinancing can reduce your monthly mortgage bill by quite a bit. The downside here is you'll be paying more interest, but it could be worth it if refinancing helps make ends meet.
Reverse mortgage. One option for retirees who have trouble with their housing expenses is a reverse mortgage. A reverse mortgage allows you to draw on the equity of your home while continuing to live there. The good thing about a reverse mortgage is that it won't have to be repaid until you move out permanently. It will allow you to stay in your home, get rid of your mortgage bill, and have a little income all at once. If you are thinking about this option, you will need to do more research to see if it's right for you. It's usually not a good option for people who think they might want to move or leave their house to heirs.
Sell and rent instead. Owning a home is an expensive proposition. You have to pay property tax, insurance, repair, maintenance, utilities, HOA fees, and more. It might be easier to just sell the home and rent an apartment instead. This will free you up from having to deal with a house and give you more time to enjoy an active retirement.
Move in with your kids. Moving in with your kids is unthinkable for many of us accustomed to being independent. However, it can be a valid option if you have a good relationship with your adult children. Multigenerational households are on the rise in the U.S. due to the recent economic difficulties. Combing households will reduce your overall housing bill and allow grandparents to build a strong relationship with their grandchildren. (Also from U.S. News: The 10 worst places to retire.)
Carrying a big monthly mortgage payment into retirement can be a burden, so it's best to have a plan to cope with the income reduction. Retirees have more options because they are not tied down to a location anymore. If it's difficult to make ends meet in the old house, then moving is a better option than getting into trouble financially.
Joe Udo blogs at Retire By 40, where he writes about passive income, frugal living, retirement investing, and the challenges of early retirement. He recently left his corporate job to be a stay-at-home dad and blogger and is having the time of his life.