Most discussions of retirement planning these days seem to revolve around issues like safe withdrawal rates, Social Security claiming strategies, and the impact of low interest rates. Let’s not forget a retiree’s choice of housing. It is an important topic financial planners should address with clients. Typically, it should be approached from three interrelated perspectives: financial, emotional, and practical.

The three most significant financial aspects of housing decisions involve cost of housing, cost of living, and the use of equity. The cost of housing encompasses many expenses, including mortgage payments, insurance, taxes, utilities and maintenance. A retired or retiring client that can reduce their cost of housing relieves some pressure on the portfolio because less cash flow is required to cover the lower expenses.

In my experience, the top target for most clients is the mortgage payment, but mathematically this may not be as important a lever as the client perceives it to be. In the case of a low-interest fixed-rate mortgage, the after-tax cost of borrowing may be much lower than the after-tax expected return from the portfolio.

In addition, because the mortgage and interest payments are fixed, the impact on the budget of eliminating the payment diminishes over time. In contrast, taxes, insurance, utilities and maintenance costs would be expected to increase at least as fast as inflation and possibly faster in the case of maintenance expenses as the home ages. The older the home, the more likely one is  to incur "off budget" upkeep expenses.

Of course, paying off the mortgage is not simply a mathematical decision. In 24 years of advising families, I have yet to come across anyone who has experienced tremendous regret for having paid off their mortgage. The lack of debt can be an empowering emotional boost.

Making a housing change can also mean a move to a location with a lower cost of living. My state, Florida, is a haven for retirees and not just because of the weather. The general cost-of-living is lower than other parts of the country and we have no state income tax. I've seen a number of consumer media pieces touting the benefits of living on the cheap overseas or even here in the U.S. by living in an RV. Those ideas have appeal to some.

The last big financial discussion surrounds the use of home equity. Downsizing can reduce many costs. Smaller, newer homes require less maintenance, insurance, property taxes, utilities, upkeep and remodeling expenses. Downsizing can also reduce or eliminate mortgage debt and free equity for other purposes.

Planners should also consider possible use uses for reverse mortgages. When reverse mortgages first came on the scene, they were almost universally expensive and usually viewed as a last resort. Today's products have improved dramatically, so they should not be dismissed as quickly as in the past.

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