Pack up and move
One big difference between Americans saving for retirement today and their parents' generation is debt. Investors boosting their 401(k) balances are simultaneously racking up more debt than previous generations.
According to a study by financial-tool website HelloWallet, 60 percent of American households are building up debt faster than retirement savings.The majority of debt held by Main Street is comprised of mortgages. The study was based on a panel of more than 50,000 U.S. households.
Although real estate is a long-term investment, its return typically keeps pace with inflation, according to Nobel Prize-winning economist Robert Shiller.
New homeowners are finding that their total monthly payments are on the rise. Real estate foreclosure site RealtyTrac found that Americans who bought a three-bedroom house in the last three months of 2013 are now forking over 21 percent more per month in mortgage payments than homeowners did, on average, one year ago.
Reducing housing costs is one way to dump some debt and free up cash for your nest egg.
There are two practical ways to slash those expenses, said certified financial planner Tim Maurer: relocating and downsizing. Moving out of an expensive abode in a high-cost area—for example, a $1 million three-bedroom ranch in Alexandria, Va.—to a lower-cost region, such as Charlotte, N.C., allows you to maintain a similar standard of living, keeping that three-bedroom ranch or even upgrading, while significantly shedding costs.
"The most powerful thing that a person can do to drastically improve their retirement standing in the shortest period of time is to move," said Maurer, director of personal finance at the BAM Alliance.
In the above hypothetical move from Virginia to North Carolina, "the prospective retiree is able to add $500,000 dollars to his or her retirement nest egg, an amount capable of upgrading a seemingly hopeless retirement projection into a comfortable one," he added.
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But moving to a new state is not always practical. For homeowners in that camp, another option could be to "sell down" or move into a smaller, less-expensive dwelling. Maurer said that by making this type of move, "you still derive the benefit of adding the balance to your retirement proceeds and lessening the costs of home ownership going forward."