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Retirees find that downsizing turns less into more

For empty nesters and retirees who still have a mortgage and a house to maintain, downsizing can reduce one of their biggest fixed expenses, help stretch their retirement budget at a crucial time and ensure they don't outlive their savings.

According to a recent survey by the Demand Institute, more than 40 percent of Americans ages 50 to 64 plan to move within the next five years. Many of them will opt for a smaller place with the goal of saving money.

"There are many folks out there feeling the pressure of having not made a lot of money in the [stock] market over the last decade," said Tim Maurer, vice president of the Financial Consulate, a fee-only financial planning firm near Baltimore. "They feel like they are behind in their retirement savings. For them it may feel ... that they have to downsize."

(Read more: As boomers live longer, more consider longevity insurance)

Maurer tries to encourage his clients to view a move to a smaller home or scaled-back lifestyle as an adventure.

John and Carol Rhoder, both 69, have done that by living permanently in their favorite vacation destination. When they retired, they calculated the cost of living in Florida, where they visited the beaches many times, and decided to buy a home in Longboat Key, near Sarasota.

"Financially, Florida is a very easy place to live," said John, a retired hospital administrator. "First of all, it's a no-income-tax state. No. 2, the living arrangements down here and the cost of living down here is a lot less."

"We still live the way we lived in New York," said Carol, a retired psychologist. "It's just easier. We go out for dinners and we travel and all that. It's fine. It's like living on vacation."

(Read more: Boomers use self-employment to stretch savings)

The Rhoders said they have significantly reduced their debt after selling their 80-year-old home in New York. They now live more comfortably on a fixed income, with no mortgage or car payments.

Older homeowners attached to their family residence, neighborhood and lifestyle may not want to consider downsizing, of course. And it doesn't always save money. You have to factor in selling costs, including commissions and moving expenses, and the costs of buying or renting a new property, as well as furnishing and maintaining it. Also, if your home sells for less than you figured, you may be further behind.

(Read more: Map: Tracking the U.S. real estate recovery)

It may be more difficult to realize savings if you downsize in the same area and make only small lifestyle adjustments.

"Nobody wants to retire into an existence that isn't financially comfortable or is really tight, so I would recommend ... considering moving entirely to a lower-cost area where you don't have to scrimp," Maurer said.

Consider how you could live a "downsized" lifestyle before you're forced to. And remember: Downsizing isn't just about your real estate but about adjusting your cost of living.

—By CNBC's Sharon Epperson. Follow Sharon on Twitter @ sharon_epperson.

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