With our nation’s present financial crisis, now, more than ever, many of us are looking for new ways to downsize. But for many retirees, downsizing isn’t merely an option — it’s a necessary survival strategy that could stretch savings and prevent a critical money crunch later on. All it takes is one or two unfortunate life events to throw one’s retirement plans into a tailspin.

Downsizing isn’t always easy and can have emotional consequences. But there are ways to lessen the load and make smart decisions that can help make your retirement years more enjoyable, less stressful and less financially burdensome.

Consider these tips to trim the fat from your budget and boost your bottom line in your retirement years.

Downsizing your life
There are many ways to cut back on expenses without feeling overly deprived
6 great ways to scale back
  1. Shrink your domicile
  2. Donate and deduct
  3. Curb communications
  4. Ditch the extra car
  5. Strip insurance
  6. Get out of town

Shrink your domicile

Less can easily be more when it comes to your home.

“Housing is the biggest area to save money,” says Certified Financial Planner Connie Stone. The Ohio-based financial planner says downsizing your home also brings the added benefit of reducing maintenance requirements — especially if you own a lot of property. Plus, you’ll save on taxes and insurance. “That can have a big impact on cash flow,” says Bill Howell, a Certified Financial Planner 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 may want space for their kids to visit,” says Stephen Horan, a Chartered Financial Analyst from Virginia. “But if you can downsize and free up capital to reinvest into your retirement portfolio, it can be a very sensible thing to do.”

Moving to a retirement community can also be a cost-saving option and at the same time offer the retiree more social interaction and services. Stone says 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.”

Donate and deduct

If having a garage sale is not your style, donating to charity can be an excellent way to get rid of things that take up space, help others in need and get a tax write-off.

But make sure you get an itemized receipt. Such documentation can be important if the IRS questions you at a later date. IRS rules for donations have become stricter in recent years and limit you to a deduction of between 30 percent and 50 percent of your adjusted gross income, depending on the type of property donated. The receiving organization must also be a charity under code section 501(c)(3) for your donations to qualify as a tax deduction.

Curb communications

Communications is an area where seniors can really cut back, without largely impacting their lives. “I think the first thing most people should look at nowadays is how much they’re spending on things like cell phones, land lines, cable TV and Internet,” says Henry “Bud” Hebeler, author of “Getting Started in a Financially Secure Retirement.”

Hebeler says eliminating land lines and premium cable channels can save you a bundle over the course of a year. Many retirees have cell phone plans with more minutes than they actually need, says Certified Financial Planner Kevin Reardon of Brookfield, Wis.–based Shakespeare Wealth Management. Re-evaluate how you’re using your phone to determine if you can change your plan to a less costly one that would suit your needs.

Voice over Internet Protocol, or VoIP, may be a viable alternative to your land line, Reardon adds. “You can get it through cable or a Vonage-type provider, and it’s usually a lot cheaper.”

Ditch the extra car

Selling that extra vehicle wrapped in the car cover seems like an obvious way to save some money. But parting with old Betsy can be painful for some. “There is some ego involved in this,” says CFP Stone. Are you merely holding onto your extra car for sentimental reasons?

Remember, by selling the extra car, you’ll also save on insurance, registration and gasoline.

If you are in the market for a new car, evaluate your driving needs to determine whether a less expensive car would suffice. “Instead of spending $35,000, you can spend $15,000 on a decent car that will get you from point A to point B,” says CFA Kevin Reardon. It’s an issue of budget and willingness to downsize.

Stone also suggests buying a quality used car instead of a brand new model. “As long as you’re buying a quality car that’s been checked out and has a warranty, that’s one way of saving money,” she says.

Strip insurance

In addition to shedding that extra insurance premium for the superfluous car, there are other types of insurance you may be able to shed. Life insurance for most people is not an investment tool, CFA Stephen Horan says.

“What it’s good for is covering your family to replace income, if you die, that you would have otherwise earned,” he says. If you have a family with kids, it averts the disaster scenario, he says. But if you’re retired and your kids have grown into productive members of the work force, you may not need it.

Investing in a cash-value policy shouldn’t replace a savings strategy. If you’re retired, it probably makes more sense to buy a term insurance policy to protect your spouse, although some advisers do recommend a combination of the two for pension maximization purposes.

CFP Bill Howell says he was able to free up thousands of dollars by converting a client’s individual life insurance policy into one that satisfied the long-term needs of both spouses.

Get out of town

Moving to an area with a lower cost of living or taxes can be a major money-saver. Some retirees are moving to urban locales, where they can ditch their cars altogether in exchange for cultural advantages and convenience. “I think you’re going to see more seniors moving into urban areas where public transportation is available and the kinds of stores and things you need are readily available, too,” says author Hebeler. An added health benefit is you can walk to most places.

College towns also draw retirees. CFP Stone sees a trend with some Cleveland-area retirees who are moving into places like the University Circle district near Case Western Reserve University in Cleveland. One benefit is that seniors can often sit in on classes at a significant discount, she says.

Bankrate’s State Tax Roundup enables you to research target states to find those that are retirement-friendly.

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