The average single retiree in good health requires anywhere from $25,188 to $38,988 to meet annual expenses, according to UMass Boston’s Elder Index. Some need much more than this if they reside in a city or state with a high cost of living.

There are several factors that determine how much money you need to live comfortably. But whether you rent or own your home, housing is likely to be your largest expense now and in retirement. And the Elder Index data reveals one key step that you can take to save yourself roughly $13,800 per year in housing costs.

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Getting rid of your mortgage before retirement can pay off big-time

The Elder Index looked at the cost of three different housing scenarios for retirees: renting, owning a home with a mortgage, and owning a home without a mortgage. The data was pretty clear.

Homeowners without a mortgage only spent about $685 per month on housing costs, compared to an average of $1,835 per month for homeowners with a mortgage. This makes sense, since mortgage payments make up the bulk of most homeowners’ housing expenses. There’s still property taxes, insurance, and maintenance to worry about, but those things pale in comparison to a mortgage payment that could cost thousands of dollars per month.

And in case you’re wondering, renting fell somewhere in the middle: Average monthly housing costs for these retirees were $1,152. But this varies a lot by location; rent is significantly higher in some cities. A mortgage payment could be more affordable if you purchased your home at a time that you could lock in a low interest rate.

Renting allows for flexibility, and you’re not responsible for maintaining the property — but you don’t get to build equity, and you have no say in whether your landlord raises your rent. This can make it difficult to budget for housing costs in retirement.

What to do if you can’t pay off your mortgage before you retire

Obviously, paying off a mortgage before retiring isn’t an option for everyone. But there are still steps you can take to reduce your monthly housing costs.

First, if you want to remain in your home, consider refinancing when interest rates are low. There are closing costs associated with this, though you can roll them into the cost of the new mortgage if you don’t have the cash on hand to cover them.

It’s possible to refinance for a lower monthly payment, though this may extend the life of your loan and increase the amount you pay in interest overall. But this may not concern you if your primary goal is to reduce your monthly expenses.

If you’re not strongly attached to your home, you could consider downsizing or moving to a more affordable location in retirement. There’s obviously more than just money to consider when deciding where to live, but it doesn’t hurt to compare what you’re currently paying to housing prices in other cities or neighborhoods, to see if the savings are worth it.

Downsizing isn’t always the best choice for your budget, though. If you live in an area where home values have risen quickly, you may find that the mortgage payment on a smaller home today could be as much or more than what you’re paying now. So be sure to run the numbers before you decide to put your house on the market.

It’s also fine to carry your existing mortgage into retirement if you feel you can handle it comfortably. Just make sure to budget for this when you estimate your annual retirement expenses.

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