This One Financial Move Can Supercharge Your Retirement Savings

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If you're falling short on your savings, you're not alone. Nearly 21% of Americans have nothing at all saved for retirement, according to a Northwestern Mutual survey, and the situation is far more dire for older workers -- roughly one third of baby boomers (the generation closest to retirement) have $25,000 or less saved.

Unless you want to depend on your Social Security checks to make ends meet during retirement, you'll need to jump-start your savings sooner rather than later. If you still have a few decades left before retirement, adjusting your budget to save more every month may be all you need to do to get your savings back on track. But if you're nearing your desired retirement age with next to nothing saved, you'll need to take more drastic measures.

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If you're serious about establishing a healthier retirement fund, there's one dramatic yet effective move you can make: downsize your home.

Making the move toward financial security

Packing up and moving may seem like an extreme option to increase your savings, yet it's been proven to work. A survey by TD Ameritrade discovered that one of the biggest differences between "Super Savers" -- people who save roughly 30% of their income on average -- and the rest of the population is that Super Savers spend far less on housing costs. In fact, just 14% of their income goes toward housing, compared with 23% for non-Super Savers.

That may not sound like a huge difference, but with a $60,000 annual salary, Super Savers allocate just $8,400 per year toward housing, compared with $13,800 for non-Super Savers. So that's an extra $5,400 Super Savers can potentially put toward retirement. That extra money can go a long way, too. If you were to save $5,400 per year while earning a 7% annual rate of return on your investments, you'd have around $510,000 saved after 30 years, which is a pretty healthy nest egg.

Downsizing to a less expensive home can also save you money in other ways. Living in a smaller house means your utility bills should be lower, and moving to a less expensive neighborhood may lessen your property tax burden. All these savings add up, and if you can save even a few hundred dollars more every month, it can make a big difference in your retirement fund.

The best part about downsizing is that once you make the move, the savings are effortless. If you try to cut back in other areas, you must consciously decide to spend less. You don't go out to eat as often, you use coupons at the grocery store, or perhaps you bike to work rather than driving to save gas. But when you have a smaller mortgage payment, you don't even have to try, the monthly automatic savings just roll right in.

Is downsizing the right move for you?

Despite all the benefits of downsizing to save money, it's not the right move for everyone. Before you decide to put your home on the market and start boxing up your belongings, take a moment to consider whether this is really the best decision for your lifestyle.

If you're already living beyond your means and you have more home than you really need, downsizing may be a great choice -- especially if your kids have moved out and you no longer need that four-bedroom home. Moving to a smaller, less expensive house will not only save you money on the mortgage, but it may also save you expenses and time in upkeep. You can say goodbye to expensive elements of your home like a big lawn that requires professional yardwork, or perhaps moving is a good opportunity to cut the cord and start saving the money that used to go toward cable.

Downsizing can be a good choice for those who can't seem to save no matter how hard they try. If you've exhausted your other options, combed through your budget, and you still can't find anywhere to cut back, trimming your housing expenses may be your best option.

Before you make a decision, consider all the costs of listing and selling your house, moving, and any potential hidden costs that could pop up. For example, if you move to an area with higher property taxes, you may not actually be saving money even if the mortgage itself is lower. Similarly, if you have to spend an extra hour commuting to work, will the money you save on the mortgage be worth the increase in transportation expenses? (And will a longer commute diminish your quality of life?)

If you decide that moving is the right choice, do some research on a prospective neighborhood and the costs of living there. Create a budget that includes everything from your new mortgage, commuting costs, taxes, as well as all your other normal expenses to get an idea of how much you'd save. Determine a maximum budget for your potential new home -- and stick to it. If you downsize for financial reasons but then end up blowing your budget on a new dream home, you're not doing your retirement fund any favors.

Moving to a new home is a big decision that shouldn't be taken lightly. But saving for retirement is critical if you want to be able to enjoy your golden years comfortably. If you're struggling to find extra money to invest for the future, downsizing may be the right option for you.

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