Your biggest costs in your golden years likely won’t be food, transportation or even health care. Housing makes up the majority of spending for pre-retirees and retirees, according to data by the Bureau of Labor and Statistics.
That’s the bad news. The good news is there are ways to cut down on the costs:
Pay off your mortgage
This is an obvious way to cut back on housing expenses. I recommend my clients pay off all their debt before
they retire, including their mortgages. Use one of these strategies to help yourself get there:
MAKE BIWEEKLY PAYMENTS: Most mortgages are set up so you pay them once a month. Instead, try making half of your payment every-other week. That adds up to 26 half-payments, or 13 full payments, per year. By making that one extra payment each year, you can take eight years off a 30-year mortgage, depending on the interest rate. Before you make extra payments, make sure your bank accepts additional payments and doesn’t charge prepayment fees. Be sure to tell the bank that you want your extra payment put toward the loan’s principal balance.
REFINANCE TO A 15-YEAR MORTGAGE: By refinancing from a 30-year mortgage to a 15-year mortgage, you can cut down on the interest you’ll pay. As an added bonus, 15-year mortgages often come with interest rates about a quarter to three-quarters of a percentage point lower than 30-year mortgages. If your interest rate is already low and you don’t think it’s worth the closing costs of refinancing, you can pretend. Put extra money in each payment as if you were beholden to a 15-year mortgage.
Cut down on costs
DOWNSIZE YOUR SPACE: Once the kids are no longer under your roof, downsizing can make good financial sense. You can cut down on mortgage costs if you haven’t
paid it off yet. Downsizing can also help you save on housing-related costs, such as utilities and taxes. And what about that furniture that can’t fit into your smaller space? Sell it for additional income.
GET A ROOMMATE: Who said roommates are for the young? Retirees often end up living alone if their spouse passes away, but they don’t have to! Having another retiree in your home can help bring down costs and give you someone to talk to. You can also consider renting a room in your home, either to a long-term renter or on a short-term basis when there are events in town.
KEEP UP WITH UPKEEP: Depending on your home’s age, homeowners should expect to spend 1 to 4 percent of their home’s value each year on maintenance and repairs. Some years you may spend a couple hundred dollars on paint. Other years you could be spending a few thousand on improvements such as a new roof. If you have an older home, expect to spend more than when you first moved in. Make sure to keep up to date on small maintenance projects to avoid surprise home repairs, which can be costly.
RESEARCH A REVERSE MORTGAGE: This type of mortgage is available to homeowners over age 62 who meet certain criteria. It allows homeowners to tap into their home’s equity, and you could use those funds to pay off higher-interest debt. A reverse mortgage doesn’t add a monthly bill; the amount you borrow is due upon death or if you sell your home. If you’re considering a reverse mortgage, talk with your financial professional to make sure it’s a good move for you.
Larry Kallevig, owner of Haven Financial Group in Burnsville, helps clients create financial plans that ensure dependable and comfortable income in retirement. Learn more at havenfinancialgroup.com.