Most of us could benefit from cutting retirement costs. Now is the time to really know what you are spending and assess your budget.
When living on a fixed income in retirement, it is very important to make sure that your income does not exceed expenses.
Living more frugally can be done no matter your income bracket. And while the idea of a more modest lifestyle may not appeal to you, it may be necessary – and not as bad as you had expected and even easier because in retirement you have far greater control over how you spend your time.
Here are 20 ways for managing your budget for a secure retirement:
1. Know What You Spend Your Money On Now
It is a lot easier to spend less when you know how much you are spending on what.
In order to reduce expenses, it is best to get a very clear understanding of exactly how you are spending your money. Try keeping a record – in a notebook, a spreadsheet, a software program or on your phone – of EVERY dollar you spend.
Many people are actually really surprised to learn how much little things add up over the course of a month.
And, if that is surprising to you, go ahead and calculate what that monthly amount means over an entire year! For example: if you are spending $100 a week on a service, that’s $400 a month — which is a lot. But if you think about that over an entire year, it becomes a more significant sum — $4,800.
2. Create Long Term Budget Projections and Identify Opportunities
Your retirement budget determines how much you will really need to have saved for a secure retirement. It is very important to get this right. While accurately estimating your expenses for the rest of your life is a daunting prospect, the right tools and advice can make it easy. And, you’ll likely find huge opportunities for cutting costs.
Housing and medical are likely your biggest expenses — consider ways to cut these costs. You can also project a really detailed budget with over 75 categories and the ability to specify the amounts you “would like to spend” vs. how much you “really need to spend.”
It is a useful tool to easily manage your cash-flow and give you confidence about your financial future.
3. Stay Healthy and Have the Right Medical Coverage
Some retirees spend more in their lifetime on out-of-pocket healthcare costs than they earn in Social Security.
You can do a lot to cut those costs by staying healthy and by choosing Supplemental Medicare Coverage carefully. Shopping around for the best supplemental Medicare plan should be done every year. Plans change. Your health needs change. The open enrollment period for changing your coverage starts on October 15.
4. Eliminate Vices
Drinking and smoking and even candy bars can be terrible for your health — which is costly (more costly than what you spend on your chosen vice).
Take smoking: according to the Centers for Disease Control and Prevention, a pack of cigarettes costs $6.28 (on average). A pack-a-day habit means you spend $188 per month or $2,292 per year. Ten years of smoking comes with a whopping $22,920 price tag.
5. Do it Yourself
When you are retired, you are usually rich in time — which could mean that you can now tackle household maintenance items that you used to hire someone to do.
In addition to cost savings, research indicates that people who keep busy doing physical tasks live longer and healthier lives.
6. Travel in the Off Season
So many people have travel as a primary goal for what they want to do in retirement. Traveling in the off season and grouping multiple small trips into one bigger trip is possible when you are setting your own schedule. These tactics can mean big savings.
7. Reduce Debt
When living in retirement on a fixed-income, you will not have more money tomorrow to pay off the debt than you do today. It is usually best to eliminate any debt as fast as possible to save money.
The average person retiring today carries over $6,000 in high interest credit card debt into retirement. Paying just the minimum payment will consume a total of over $22,000 over a period of 20 years.
By comparison, a person taking advantage of debt consolidation could pay off the same debt, with same monthly payments in just 6 years and with a total of only $6,760.
Reducing your debt represents a huge opportunity to reduce your expenses in the long run. If you have savings, you might consider using those assets to pay off your debt. Refinancing your mortgage is another way to access cash – as well as potentially reduce monthly payments.
8. Figure Out What You Are Paying in Banking and Investment Fees
These fees can really add up. The first step for reducing banking and investment fees is to figure out exactly what you are paying — it is not usually obvious.
You might start by looking at your statements and calling each company. Ask them to explain to you how much you are paying to maintain each account.
9. Can You Eliminate or Reduce Your Mortgage Payment?
Housing costs are usually by far the single biggest expenditure for any household. As such, your mortgage or rent represents a significant opportunity to reduce your retirement costs.
How? Consider these opportunities:
Use Savings or Other Assets to Pay Off Your Mortgage: A study by the Center for Retirement Research at Boston College found that it is unlikely that many retired households will be able to earn a return on risk-free investments such as bank certificates of deposit, Treasury bills, and Treasury bonds that will exceed the cost of their mortgage.
Liquidity considerations aside, households holding such assets will generally be better off using them to pay down their mortgage. If your money is in stocks and earning a higher return than your mortgage interest rate then you need to weigh the risks inherent in stocks and the sure thing of being mortgage free.
Downsizing: Finding a lower cost home or a lower cost community in the United States or abroad can pretty dramatically improve your monthly retirement budget. Depending on your interests and goals for retirement, downsizing can also represent a significant opportunity to improve your lifestyle.
Reverse Your Mortgage: Another option if you want to stay in your existing home is to get a reverse mortgage. A reverse mortgage gives you access to home equity to spend in any way you please while also enabling you to eliminate your monthly mortgage payment.
10. Eliminate Unnecessary Routine Expenses
Sodas, lunch out, coffee, water bottles, lottery tickets, daily paper and other low cost items are everyday expenses for millions of retirees. However, these items are not necessary. And even though the daily costs are small, the total expense over a year could represent a significant savings.
Saving even just a dollar a day equals $365 a year!
11. Be Mindful
It is awfully easy to toss something extra into your grocery basket when in the store, order a glass (or bottle) of wine at dinner, plan an extra round of golf or buy new work gloves when you are at the nursery or home improvement emporium. And, there is nothing wrong with any of those things. However, it is a good idea to take a moment to think about the money you are spending.
Be mindful whenever you are in a situation where you could spend money. And, ask yourself if you really need and want each item or experience.
12. Gas and Electric Savings
You might start by benchmarking your gas and electric expenditures. Call your service provider and ask them to compare your spending to other households in your area. Your service provider can also probably provide ideas for how you could reduce your usage.
Raising your thermostat in summer and lowering it in the winter, turning off lights, using energy efficient light bulbs and unplugging devices when not in use are easy ways to reduce your bill.
Or, if you are thinking about relocating for retirement, maybe you should consider a more temperate climate. And, have you considered alternative energies? The cost of solar power is getting lower and lower.
13. Don’t Go With the Flow: Cut Water Usage
Again, benchmark your household against others in your area by consulting your water provider. And ask the utility for cost cutting tips.
Low flow toilets, fixing leaks, reducing the need to water plants with efficient landscaping are a few considerations.
14. Shop Around to Reduce Insurance Costs
Auto insurance and homeowners insurance are highly competitive industries. As such you may be able shop around and find a less expensive option than your current provider.
Some services may be able to help you find a less expensive option. Compare Auto Insurance and Homeowners Insurance rates.
15. Rethink Phone Costs and How You Consume Media
How we use phones and how we consume media at home is dramatically changing and you may find some opportunities for reducing these expenses.
If you still have a traditional phone line at your home, you can explore eliminating it and just relying on your cell phone.
Have you shopped around for a better cell phone rate lately?
Do you have cable? Would you be better off watching shows via services like NetFlix, Amazon Prime and Hulu?
Are you getting the newspaper delivered? Magazines? Could reading these subscriptions online reduce your monthly spending?
16. Can You Eliminate Your Car?
Transportation expenses are actually the second biggest spending category for most retirees (after housing). According to data from the Bureau of Labor Statistics, for adults age 65 and older, transportation costs represent 16% of retirement costs — even more than healthcare which represents 13.4% of average retirement expenditures.
If you want to get rid of your car, look at the walkability of your neighborhood, public transportation options and the availability taxis, uber and car sharing services (zipcar, getaround and Hertz on demand) in your community.
17. Use Coupons: Quickly Search the Web for Discounts
In addition to traditional coupons found in newspapers, flyers and magazines, there are myriad of web sites that enable you to find the latest coupons for all kinds of stores.
Most of these sites are searchable and are well worth a visit before you make any kind of purchase. Just try doing a google search for “coupon” and the store where you would like to shop or the product you would like to buy. You are almost guaranteed to find some kind of savings.
Or, try going directly to some of these sites:
18. Use the Library
Your local library can be a tremendous source of free entertainment. Books as well as movies can be borrowed without any cost at all.
19. Get Creative or Inspired
There are numerous web sites devoted to frugal living. Visit a few of these sites every month or so to help you think of ways to cut retirement costs:
20. Take a Look at What Happens to Your Lifelong Finances if You Cut Retirement Costs
Perhaps the best way to get inspired to spend a little less each month is to look at what a more frugal budget will mean to your lifelong retirement finances.
Start by entering some basic information and get some initial feedback on where you stand. Then you can add a lot more detail and try an infinite number of scenarios. See how much longer your retirement savings last if you cut retirement costs — spend 2% or 30% less.