House and money on scales © MOODBOARD,age fotostock

The housing crisis may have changed how people perceive the role of home equity in funding a comfortable retirement. But downsizing can still be a viable way to increase your savings cushion significantly. Before you put up the for-sale sign, though, ask yourself these questions to determine if it's the right step for you:

How much does the alternative cost? First and foremost, you need to make sure you are actually going to save money by moving to a different home. I know of many people who had planned to downsize only to buy an even bigger house once they got caught up in the housing hunt. Also factor in maintenance costs of the home, as well as property taxes. Don't ever try to downsize only to end up spending just as much as or more than your original housing costs.

How will moving to a different house affect your lifestyle? Where you live makes a big difference in how much you need to spend. Some people opt to move to a different city altogether, but that's not the best choice for everyone. Consider whether you will be moving closer to or farther from your family. If your family is close by, will your new place have room for your grandkids to stay over? If you love hosting Thanksgiving, will you have a big enough dining room? Also think about whether you want to stay close to your friends in your retirement years. Money is important, but other matters are, too. Moving is a big decision, so think it through carefully. It could be costly to move back if you regret the decision to relocate.

Will you be responsible with a sudden influx of money? Spending money is very easy, which is one reason so many people end up in poverty even after a significant inheritance. If you cash out your home and move into a much smaller one, will you be able to make that extra cash last, or will you blow it on expensive toys? One way to mitigate the temptation is to have a plan for how the money will be invested before you sell. It's much easier to think clearly when there isn't a lump of money at your fingertips.

Are there taxes to worry about? Selling your primary home for more than the real estate capital gains tax exclusion may seem unrealistic. But if you stay in the same home for a few decades, this scenario becomes more likely. Before you sell your home, figure out how much money you would actually net, factoring in costs such as moving expenses, taxes and real estate agent commissions. Some people who downsize end up paying more for a smaller home because taxes take a big bite of the gains on the older home. Don't be one of those people.

Are there other ways to extract equity from your home? A reverse mortgage can be costly, but it may make sense for you because you can stay in your home as long as you are alive. Some parents may also be able to work out a deal with their children in which the parents sell their home to the kids but remain there. If you don't want to part with your current house, explore possibilities that will allow you to stay in your home throughout retirement.

Downsizing is a great idea for many people hoping to make their retirement more financially secure. But make sure you understand how a less-costly home could affect you before you take the plunge.

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