The kids are safely out on their own and retirement is at hand. If you're planning to sell your now oversized home for something smaller and easier to maintain the first issue you'll need to tackle is how you'll finance the new house?

Most downsizers no longer need to worry about taxes. For couples filing jointly who have lived in their home for at least two of the five years leading up to the sale, $500,000 in profit is tax-free. Many downsizers flush with cash from the sale of their old home, choose to buy their new home outright, freeing themselves from monthly mortgage payments. Although this might sound attractive, it may not be your best option, especially if you consider the tax benefits.

If your investment returns are higher or the mortgage rate lower, the returns would be even greater. And that's not even counting the home's appreciation and the power of leverage.

Keep in mind, though, that qualifying for a mortgage as a retiree can be more difficult than qualifying during your working days. And your estate-planning goals may also influence how you decide to pay for your new home.

Before you make a commitment to pay cash or borrow, run your proposal by an estate lawyer to make sure it complements your overall plan and doesn't create problems for your heirs.