Downsizing, especially after the children are on their own, is a frequently used approach for managing your income for life. Reducing housing expenses can save tons of money. If you reside in a highly appreciated area where your home could be worth a lot of money, selling can free up a substantial amount of cash flow or even be used to wipe out debt. What is left over can then be added to your nest egg or even used to cover future long-term-care expenses. Keep in mind, if you are married you can protect up to $500k of your profit from capital gains taxes when you sell your home. If you single, it is half of that amount.
However, if you really want more bang for your buck, then consider more than just downsizing. You may want to move to another state with lower living expenses altogether. I had a client that was living the Northeast. They loved the area. However, when it came time to retire, they wanted to stretch their dollars ensuring their nest egg didn’t run out. Additionally, they wanted to leave some money behind for their heirs. So they chose to move the Southeast.
In Providence, Rhode Island, their annual salary was $200,000 a year. They chose to head toward the beach in my home state of Georgia (which happens to be one the tax-friendliest states for retirement), settling in historic Savannah. There they only needed an income of $145,000 to maintain their lifestyle. Not only that, but the money they saved on living expenses blew them out of the water. Their modest three bedroom home went from $400,000 to only costing them just under $200,000. How’s that for savings! They bought their house outright and stocked the rest away to use in the bucket strategy!
The ramifications of making such a move may seem emotional at first. But if you haven’t done the best at saving, you can turn an impossible situation into a comfortable one just by moving. Plus, moving into a state that provides retirees a substantial tax break may free up cash for a higher standard of living in retirement, as well.
However, before jumping to another zip code, do some research. Look at the cost of living where you are and where you are thinking of heading. Maybe take an extended vacation to the area you are considering. That could give you a good idea of whether it is really what you want and need to make your retirement all you dreamed it to be.
Obviously, if you just can’t make the move, perhaps due to aging parents or some other scenario, there are ways to exploit the equity in your home for earnings. Talk with your financial planner to work out the best strategy for you.
So there you have it, the twelfth retirement strategy to keep you from outlasting your hard earned money. Utilize any of all of these to make your retirement the staycation you aimed for. If you need help incorporating any or all of them, contact me.