Downsizing means that you sell your current home to purchase a less expensive home. You can find a smaller house or, free from the constraints of your career, you can move to another less expensive community.

There are many important benefits to downsizing:

1) Huge Financial Benefits of Reducing Your Mortgage Burden

First and most important: eliminating or reducing your mortgage is an important financial goal for retirement.

Debt is Never a Good Idea in Retirement: When you are living on a fixed income, paying interest on debt is not a good idea. You are usually not going to generate additional income to pay down that debt – you are often using up your assets needlessly. Additionally, since your income in retirement is often lower and you're probably paying down principal with your mortgage payment you may not realize the income tax savings you enjoyed earlier.

Tax Advantages: Furthermore, if you are withdrawing money from retirement accounts to pay your mortgage each month – this additional "income" could trigger additional taxes. Some financial advisors calculate that every $1,000 a couple remove from their retirement accounts to pay their mortgage will cause between $500 and $850 of Social Security benefits to be taxed – making the mortgage cost even more than the principal and interest.

It is also important to note that typically the first $500,000 for married couples (and $250,000 for single people) of capital gains on a house are tax free when you sell (if the house has been your primary residence for at least the past two years.)

Opportunity Costs: Finally there are potentially opportunity costs inherent in tying up your money in a mortgage. By cashing out some of your equity by selling your house you could pursue other strategies including:

• An annuity to enhance your retirement financial plan – supplying you with income for life.
• Long term care insurance to help protect your assets and quality of life in the unfortunately likely event that you will require long term care.
• Life insurance which could be passed on to heirs.
• Travel, hobbies, more time with family

2) Reduce Ongoing Expenses

It is important to understand that the cost of your house is not just the amount you pay on the mortgage each month. Maintenance and utilities on a large house can add hundreds or thousands of dollars to your monthly expenses.

And, you may be living in an area with a very high cost of living. Another community might enable you to pay lower taxes, less on gasoline and other amenities that could lower your ongoing expenses.

Home Maintenance: According to a Brief from the Bureau of the Census, the elderly are the most likely group of homeowners to have not paid for recent house maintenance – probably because they do not have the assets or income to do so. As a result, they have a much higher chance of having severe or moderate housing problem than owners aged 35 to 64 years.

Not maintaining your house decreases the potential value of the property, often causes more repairs to be needed, and could decrease your quality of life.

Consider how much you do or should spend on the following categories of home maintenance and how a different property could save you money:

• Size of your house and yard
• Type of landscaping (does it require a lot of watering? Care?)
• The state of your roof, foundation, decks, and more
• The quality of your house's "systems" (electric, gas, water, etc…)
• Are you fighting to maintain parts of the house that you never use – like a pool?
• Does your house need or will need paint or other updating?

Would downsizing enable you to reduce your maintenance costs?

Utilities: Take a look at your utility bills and think about how those costs could be minimized. Consider the following:

• Larger homes cost more to heat and cool than a smaller home.
• Large yards require far more water to maintain
• How much money could you save by moving to an area that doesn't require as much heating or cooling as where you currently live?
• Older homes are not necessarily built to conserve electricity and water.

Cost of Living: You may be able to move to a different community that offers a much lower cost of living than where you are currently living. You should understand exactly how and on what you spend money now and consider how you might be able to decrease those expenses by relocating to another area.

Taxes are one cost of living you should consider. Research sales, property, estate and income tax laws for the areas you are considering.

3) Improve Quality of Life

Beyond saving you money and potentially enabling you to strengthen your retirement financial plan, downsizing and relocating could dramatically improve your quality of life in retirement.

You could reduce the time and hassle you might currently spend maintaining your home and move to an area ideally suited to your values and interests.

You might move out of your large suburban home into a condo by the beach. Or, relocate from one side of the country to the other to be closer to family. Perhaps your health would benefit from fresh air. Maybe you would like closer proximity to a major airport to make travel easier. Perhaps you simply don't want to shovel snow anymore.

No matter your motivation, retirement should be a time for you. Find the place to make these years the best they can be.

Consider the following when evaluating locations for retirement:

• Proximity to family
• Climate
• Adult education opportunities – cooking classes, golf lessons, etc...
• The number and types of doctors
• Hospitals
• Air quality
• Crime rates
• Availability and cost of recreational activities
• Availability and cost of cultural activities
• Proximity to travel – planes, trains
• Existence of restaurants or other services you value
• Clubs
• Cultural events and festivals

The actual home you choose is also a factor. You will want to consider how well you will be able to live in the home or condo as you age:

• How easy is house to maintain?
• Does the house have stairs?
• Could the house accommodate a wheel chair if necessary?