Discover 10 Ways to Reduce Costs in Retirement
As you put pen to paper and try to calculate retirement needs, you can be left wondering how you will build adequate monthly cash flow to last the rest of your life. There are many unknowns in retirement: How long will you remain healthy? What will your healthcare costs be? How long will you live and how will your investment accounts perform?
For many, the unknowns have you looking for ways to save today to leave more for those unknown factors. How much should you allow in your budget once you stop working? Will costs be lowered by 50%, 25%, nothing? Some costs, like health care, are likely to increase over time. Other costs related to work might be reduced or eliminated entirely.
Eliminating Work Related Costs
- Work Commute will end, saving you the cost of transportation to and from Bus or train passes may no longer be needed. Parking fees may go away completely. While you will likely still use your car, the number of miles you travel may be reduced, saving on insurance costs and maintenance. The fewer miles you travel, the longer the car will last.
- Professional Dress will be reduced or eliminated. It’s not necessarily time to buy a whole new wardrobe, but you will be able to dress more casually once you are retired. Savings might include a reduction in clothing purchases, elimination of dry cleaning costs, and other costs associated with dressing professionally. No more uniforms, suits, and an extensive wardrobe to accommodate various work Long term, one should see your cost of attire go down significantly.
- Office Expenses can start with lunches every day. You will no longer have to eat out for lunch, call in for pizza when you are working late, or hit the vending machine for your afternoon pick me up. Other costs associated with work might include office supplies, social events with co-workers, and other expenses not paid for by the company.
Costs at Home Which Can Be Reduced or Eliminated
- Housing Costs. Owning your home outright can lead to big savings in retirement. Eliminating the mortgage payment will greatly reduce your cost of living. Rental and mortgage costs average 30% of income with another 3% to 4% spent on utilities. For those with a retirement budget of $5,000, eliminating your mortgage could save around $1,500 a month or $18,000 a year. That’s a sure way to make your savings go further. Downsizing could bring about similar savings almost immediately. Even if you are unable to pay off the mortgage before retiring, you can still save in the long run.
Rental rates are expected to continue to rise faster than inflation, resulting in a greater benefit for senior homeowners. Don’t refinance, but focus on paying the mortgage off after eliminating other high-interest debts. Lack of a mortgage does not eliminate housing costs. Maintenance, taxes, and insurance will still be required each year, but these are much lower. Some states and counties freeze or discount senior property taxes to help you stay in your home.
- Second Vehicle. Most working families require two vehicles to operate a household. Many have one vehicle for every driving adult. Retirement may also allow you to downsize to one vehicle which saves on the cost of insurance, property taxes, and maintenance fees.
- Tax Savings. Turning 65 grants you a higher standard deduction when you file your taxes, saving you money by reducing tax liability. A lower retirement income may reduce your tax bracket and social security payments may arrive tax-free, depending on your taxable income. Roth IRA distributions are tax-free, and investment income may be taxed at the lower capital gains rate, rather than as income, reducing tax liability.
Other Savings for Seniors
- Senior Discounts begin as early as age 50. Becoming a member of AARP gives you discounts on everything from insurance premiums to restaurants and hotels. Many places give discounts of 10% or more to seniors with proper ID. Restaurants offer low-priced, high-value senior menus that will save you money eating out. Airlines, hotels, entertainment, grocery stores, pharmacies and many more companies regularly give senior discounts. Sometimes the policy is posted and other times discounts are only available if you ask. Ask!
Other discounts include the park service which offers seniors a $10, lifetime pass to all national parks. Many states offer licenses for fishing and hunting at very low rates without requiring annual renewal. Colleges across the nation offer tuition waivers, allowing seniors to continue learning at no cost to you. When you are shopping look for signs or ask if they accept AARP (which is only $15 a year to join) or give senior discounts.
- Travel at Off Peak Times. No longer being tied to work or school schedules gives you a lot more freedom to save money on travel costs. Visiting popular places during the off season not only grants you the ability to enjoy the destination without the huge crowds, but you can also save as much as 50% on travel costs. Flights, hotels, and entertainment offer discounts during slower months of the year. If the weather is the reason a certain destination is popular, visit during the shoulder season (just outside of peak season) and you can still save a bundle.
- Do It Yourself. Convenience purchases are faster and make life easier when you are busy. The slower pace of retirement can give you time to complete tasks that you otherwise hired out due to the lack of time. As a retiree, you can take on some of those tasks, saving money. You may not need to hire a house cleaner or someone to do the lawn. Perhaps you can complete basic repairs yourself. Reducing the need for convenience items such as prepared foods or eating out more often because you don’t have time to cook can also lead to big savings.
Finding savings in retirement will help you prioritize spending and enable you to stretch retirement dollars further.