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July 21, 2008

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Of all the tips, I think delaying your SS benefits are one of the best. By delaying, your benefits are increased by about 8% (a good return on your money) for each year.

Regarding selling your house in a down market:

If you look at the difference between house appreciation and stock appreciation, you'll find that a down market is the perfect time to sell. Houses appreciate on average about 5%. Just above or close to the average inflation. You can easily find stocks that gain 7&-10%. So buying stocks in a down market is more valuable than holding onto a big house in a down market.

I think it's actually the perfect time to downsize your housing. My wife and I are looking at downsizing right now. While the market is tough if you want to sell your house, it's great for buying a house. You can find great deals on foreclosures or near to foreclosures. So really it's a wash, but in the long term, stocks gain more than sitting on a house.

Personally, I think selling a big house and buying a duplex is the best solution if you are up for managing a rental. It gives you a constant stream of income on top of downsizing. And now is the perfect market for renting especially with all of the people who can't get mortgages anytime soon due to foreclosures.

Its surprising that downsizing your house is not suggested more. It seems like such an obvious no-brainer decision (other than the potential emotional attachment to a house you may have lived in all your life and raised your kids in).

Not only do you get to extract excess cash and get return on it but you save in lower property taxes, lower utility bills and presumably lower maintenance on a smaller property (assuming you didn't buy a dive).

If you live in a 3200 square foot 4 bedroom house for raising 3 kids, its pretty easy to make the case that 60 year old empty nesters would have far more house than they need.

We are 55, and our kids are raised. Our house is 2900 SF, and even though we both work at home, it's too much space for us. (Plus it's on acreage, which we don't want to concentrate on caring for anymore.) We have more than a 70% equity in the house, with some years remaining on the mortgage. We could move to a nice area in town (KC) and pay cash with our equity, freeing up quite a piece of monthly cash for retirement. We are considering doing just that....

If you don't need to take early SS, the best approach seems to be to go ahead and take it at 62, invest the money conservatively until you do need it or at the age of 70, whichever is later. You can then pay it all back and start over again and take your SS benefits at the higher monthly payout for your current age.

The SS office only requires you to pay back the money received, not interest, to do this sort of restart, so any investment gains are yours to keep. Plus, in the event you do die before 70, your heirs then do get something.

Downsizing would seem to be part of the natural order of things. I know some people stay in the same house for decades until they are very old, but it seems many people downsize to smaller houses, condos, apartments, trailors etc.

What I wonder is whether the demographics, combined with higher energy costs will create a glut of the larger homes on big lots in out-of-the-way subdivisions all over the country in the coming years, driving down the price just when the aging owners need the cash.

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