"Housing is the biggest area to save money," says Certified Financial Planner Connie Stone. The Ohio-based financial planner with Stepping Stone Financial in Chagrin Falls says downsizing your home also brings the added benefit of reducing maintenance requirements -- especially if you own a lot of property.

"I have a number of clients who own one- to three-acre lots and they're saying it's too much maintenance for them to do in retirement," she says.

Stone advises her retired clients to get into a smaller place with less upkeep.

Another advantage of downsizing into a smaller home is the savings on taxes and insurance.

"That can have a big impact on cash flow," says Bill Howell, a Certified Financial Planner and certified public accountant who heads Howell Financial Advisors in Noblesville, Ind.

Howell says he recently advised a newly widowed client to move from the large house she shared with her husband into a smaller one to lighten the mortgage and tax load.

"She'll still have a mortgage, but the monthly payment will be reduced by about 25 percent and the taxes in her new community are significantly less," he says.

Despite the general savings that come along with downsizing a home, many people are still reluctant to do it.

"Most retirees have an emotional attachment to their house and most want space for their kids to visit," says Stephen Horan, a Chartered Financial Analyst and head of private wealth and investor education at the CFA Institute in Charlottesville, Va. "But if you can downsize and free up capital to reinvest into your retirement portfolio, that can be a very sensible thing to do."

Some retirees find the social interaction available at retirement communities attractive. Many communities offer apartment-style homes with one to three bedrooms.

Stone suggests shopping for a retirement community that provides bundled services such as meals and laundry. She also recommends that you visit several communities and talk to residents to get a feel for the environment.

One of her clients recently moved into an apartment at a retirement community because she felt lonely and didn't want the upkeep associated with a larger condominium.

"She absolutely loves it because now she has a smaller home and she has fixed costs for her meals," she says. "Her grocery bill has been cut by two-thirds because she only has to make breakfast and lunch."