If there's one aspect of retirement that's universally daunting, it's the notion of running out of money. But unfortunately, it's a very real risk for the countless Americans who enter retirement financially unprepared year after year.
If you're approaching retirement with inadequate savings, there are several ways you can compensate to avoid depleting your nest egg prematurely. You might, for example, decide to work part-time as a senior to generate income, thereby leaving more of your nest egg intact. But here's another option you might consider: downsizing. An estimated 42% of Americans plan to downsize in retirement, according to data from TD Ameritrade, and it's a move that could end up spelling the difference between struggling financially and having enough cash to cover the bills for the rest of your life.
Why downsize in retirement?
Even if you own your home outright by the time you retire, downsizing to a smaller space can still save you a bundle. Remember, other than healthcare, housing will likely be your single greatest monthly expense as a senior, so reducing it as much as possible could work wonders for your budget.
For one thing, it costs less money to heat and cool a smaller space than a larger one. If you're used to spending $250 a month on utilizes for a 2,000-square-foot home, downsizing won't necessarily cut that bill in half — but you might reduce it by a third, which will help.
Furthermore, it stands to reason that maintaining a smaller space is easier and more cost-effective than maintaining a larger one. The typical homeowner spends 1% to 4% of his or her property's value on upkeep per year, but if you downsize, you'll see maintenance costs shrink or disappear as a result.
Another thing to keep in mind is property taxes. Property taxes are a function of your home's value times your local tax rate, so if you sell you home, you'll no longer pay these taxes. And since property taxes are no longer fully deductible (they're part of the SALT deduction, which was once unlimited but is now capped at $10,000), lowering that bill makes sense on multiple levels — particularly if you're living in a state whose property taxes are much higher than average.
Finally, remember that by the time you retire, there's a good chance your adult children will have moved out, which means you like won't need all of that space. And that's reason enough to swap your current home for a smaller one that's easier to deal with in all regards.