Retire Mortgage Free

If the biggest obstacle between you and your retirement is your mortgage payment, consider easing the burden on yourself with this outside-the-box strategy.

Before you get lost in retirement daydreams about transatlantic cruises and golf courses in Scotland, you have to determine how you're going to adjust to living without a paycheck. In all likelihood, you'll need some pretty dramatic cost cutting just to keep the fridge stocked-and that's before your cruise fares and golfing expenses.

Retirement enemy number one

The experts say that you'll need about 70 percent of your pre-retirement income to sustain your lifestyle in your post-working years. Looking at this figure, you have to wonder how your living expenses are going to decrease miraculously by 30 percent. Surely you haven't been spending 30 percent of your income on gas just to drive to work! And how does this reduced expense figure account for the costs associated with the world travels you're planning?

The answer lies in an outdated assumption: that you'll have paid off your mortgage before you kiss your job goodbye. You'll definitely save some money by not having to drive to work everyday. And you should save on your taxes. But the biggest line item in your personal budget is the mortgage, and getting rid of it is the key to reducing your monthly living expenses by 30 percent or more. If you aren't in the position to pay off the mortgage before you retire, you're going to have to rein in your lifestyle, or consider other such options.

Working your equity

Assuming that you'd rather not live like a pauper, you'll need to contemplate new choices. You could use the equity value in your home to pay cash for a residence in some other part of the country (or the world). Let's say that the market value of your home is $300,000, and you owe $150,000 on your mortgage. You could sell the home for $300,000, pay off your mortgage, and use the $150,000 to pay cash for a different home. Just like that, you'd have sliced a double-digit percentage from your living expenses.

Where homes cost less

The challenge in doing this is finding a home that you love for the right price. Unless your current house is massively oversized, you'll probably have to move to a community where property costs less. Warm weather retirement havens like southern California, Arizona, and Florida, for example, will be largely off limits. Small towns might be the best place to start looking. Take the town of Holland, Michigan, for example. It was included in Money Magazine's 2006 list of the Best Places to Retire. Notably, it's median home price is about $150,000. Silver City, New Mexico is another example; this small town enjoys an average home value of about $135,400.

You can find an abundance of deals outside U.S. borders, as well. Try looking into the Caribbean, Mexico, and Colombia. Who knows...if you find the right place, the pricey worldwide travel may not be necessary after all.