According to CNN Money, you can expect your monthly expenses in retirement to fall by 30%. Cutting Expenses for Retirement
The rule of thumb is you’ll only need about 70% of your pre-retirement income to live comfortably. A 30% decrease in your expenses is natural, but you can still go further. Cutting your expenses by 50% after retirement is within the realm of possibility. Some of it will happen naturally and some of it may require action on your part. Read on to get some ideas flowing! Cutting Expenses for Retirement
Payoff has Some Simple But Proactive Ways to Decrease Expenses
Take your natural decrease in expenses even further with the tips below!
- Consider reducing insurance coverage. Life insurance is mainly for those who depend on your income. At this point in your life, your children are probably grown and your spouse has his or her own money flowing in. Consider getting rid of or cutting back on your life insurance. If you’ve been able to save during your career, this may be enough of a legacy for your loved ones.
- Be sure to take required minimum distributions on your 401(k). Each year, anyone over 70 ½ is required to make minimum withdrawals from their retirement accounts. If you don’t take out the right amount, then you will be penalized heavily. It’s a 50% penalty PLUS income tax on the amount you should have taken. If you’re unsure of how much you should be taking out, look here to help with the calculations.
- Take caution to reduce fees from ATMs and banks. Limit your transactions, particularly on investments, and be sure you’re following the rules on using your bank account. These small fees can add up!
- Prioritize spending the money that will be taxed first. Many types of retirement accounts will get automatically taxed. So save your 401(k)’s until after you’ve spent those. You don’t get taxed on your 401(k) until you take the money out, so keep it in there (but take minimum distributions!) until you have exhausted all of your other already-taxed money.
- Don’t be late for Medicare. Premiums increase the longer you wait to sign up. In fact, for each year you wait to enroll, the cost increases by 10%.
- Senior discounts! You’ve earned them, so feel free to ask for all the discounts you can get. Some companies publicize discounts, but many don’t, so it’s always a good idea to ask whenever you go to purchase anything from food to hotel stays.
- Travel! Retirement is a great time to travel! You can now go anywhere at any time of year. Use that flexibility to take advantage of the cheapest time of year to travel and on the cheapest day. Here’s a good resource on how to find cheap flights. The reduced stress from avoiding peak travel times may also help to lower your medical bills!
If You’re Ready to Take The Bigger Steps To Savings:
- You’ve probably considered selling your home. Big homes are a huge and potentially unnecessary expense. With the kids out of the house, you may not need so much space. Psychologically, it may be hard to let go, so this is a decision that should be carefully weighed. How much are the savings and simplified lifestyle worth to you?
- To take things one-step further, consider moving far away! You are no longer tied down to a job. Consider a city, a state, or even a country with a low cost of living. Arizona and Florida treat early retirees particularly well.
- Could you survive as a one-car household? If it sounds possible, this could save you thousands of dollars. You’ll need one less garage stall, be able to do away with insurance and registration for a second car, be making a great step towards the more simplified lifestyle you may desire.
- Price comparison-shopping may have seemed like a luxury when time was short, but now it’s a luxury you may be able to afford. Instead of rushing to get a new clothes dryer on the weekend, you can wait and make sure you’re making the best deal possible. If you enjoy clipping coupons, now’s your chance to finally master that elusive $100 per month grocery goal you’ve had for years!
- If you still have any, now is the time to focus on eliminating debt! Expenses have never been lower, and you’re freer to explore all of your options. Payoff.com is a great option for helping with credit card debt. With a dedicated advocate by your side, they will help you get to the retirement you’ve always dreamt of-free from debt!
- Still have a landline? Use an outdated internet service? Consider learning about and adopting the latest technologies, while dispensing with the old ones. You may find that this not only saves you money but also helps you to connect with everyone around you!
- Consider devoting more time to do-it-yourself projects. Instead of outsourcing work you once enjoyed, like gardening, you can now do it yourself. In theory, you’ll have 40+ hours freed up to devote to new projects. What will you accomplish? Maybe turn your hobby into a new business?
How Low Can You Go?
Remember when you were a teenager? Your expenses were probably pretty low. You can get them low again in retirement. There are so many ways to naturally and proactively save money in retirement. The best news is that it’s not just about savings. It’s about living the lifestyle you want.
Take your savings and new flexibility to make your dreams a reality. Have you ever wanted to live abroad? Go ahead! Have you ever wanted to learn carpentry skills? Go for it! You will have more time for it, and the resources to pursue it. What will you do with your extra cash?
Enjoy retirement! You now get to save (and spend) money on your own time, and on your own terms.
Brought to you by Payoff! Cutting Expenses for Retirement
DISCLAIMER – All examples are hypothetical and are for illustrative purposes. The above statements are provided as tools for your independent use and are not intended to provide investment advice. Payoff cannot and does not guarantee applicability or accuracy regarding your individual circumstances. You should consult with a financial professional about your personal situation.
