Yes, moving to less expensive housing in retirement can produce many financial benefits. Two basic housing decisions can affect your financial well-being in retirement as much as, or even more than, saving and investment decisions. These decisions are where you'll live (i.e., geographic location) and what kind of house you'll live in. One study concluded that "changes in geography and shelter are great surrogates for a lifetime of investing."
The greater the amount of downsizing between current and future housing costs, the less accumulated savings someone will probably need to live comfortably in retirement. Living costs (e.g., utilities, maintenance, property taxes, etc.) will be reduced, and profit on the sale of a prior home (after paying for a less expensive home) can be invested to provide future income.
Some caution should be noted, however. Housing markets can be very volatile and you cannot count on receiving a certain amount of money upon the sale of your home. For this reason, a variety of retirement planning strategies (e.g., tax-deferred retirement savings accounts) are recommended.
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