Retirement Expenses

How to Retire Well on a Small Budget

an older couple in woods-retire well on a small budget

The truth is a lot of retirees will be living on a small budget. According to U.S. Census Bureau data, the median average retirement income in 2021 for retirees 65 and older is $47,357.

And the average retirement savings for people aged 55 to 64 is $375,000. For most people, these savings will decrease when they start spending them in retirement.

With not that much money in your pocket, retirement is getting more difficult than ever with the growth of inflation and just about everything getting more expensive.

Living well on a small budget in retirement can be challenging, but it is possible. There are a few things you can do to make it work.

Pay attention to your spending.

When you have to live on a small budget in retirement it is important to know where your money is going. Not many of us like to spend time tracking our expenses. But you cannot afford to slip money away on something that is not important while living on a tight budget. Every dollar should be accounted for.

Here are the biggest expenses in retirement – housing, transportation, food, and healthcare.

Take a careful look at your expenses and see how you tend to spend money each month. Divide all your expenses between fixed and variable and see where you can cut back.

Fixed expenses such as mortgage/ rent, utility bills, and car insurance are set and hard to change. However, variable expenses such as clothing, dining out, travel, and entertainment are easy to reduce.

How to Cut Expenses Before You Retire

There are many budgeting apps that make tracking your spending easier than it used to be.

Best Budgeting Apps

Reduce your housing costs.

Keeping a roof over your head is always one of your biggest budget items. But how much money you can spend on housing is critical when you have to live on a limited budget.

Luckily, we have many options to choose from:

Downsize to a smaller home or condo
Move to a cheaper location
Rent an apartment
Relocate to 55+ community
Age in Place

First, think about where to live in retirement and the monthly costs of that place including rent or mortgage, taxes, maintenance, and repairs.

Second, decide how close you want to live to your family and friends and what your other priorities such as climate, rural or urban areas, and proximity to medical facilities.

Third, if you choose to age in your home, figure out the cost of renovation for retiring in place and how much help you will need for maintaining that big house when you are older.

Choose your place to live in retirement carefully because it is your biggest budget expense.

5 Common Mistakes to Avoid When Choosing a Place for Retirement

Reduce your transportation costs.

Cars are expensive. You do not need to spend a lot of money on your car to have a happy retirement.

Typically, most retirees spend less time on the road driving than the average driver. According to stats, people over age 65 spent an average of $7,062 annually or $588.50 per month on transportation.

Owning 2 or 3 cars is often required when you live in the suburbs and work in the city or have kids. But when you retire, you do not need to have 2 or 3 cars. It stops making so much sense and hurts your budget.

If you have been a two-car family for years, it is time to downsize to one car so you can spend less money on insurance, gas, maintenance, and taxes. And if it is time to replace your old car, do not buy a new car. Consider buying something that is about 2 or 3 years old so you can pay less.

Most vehicles lose about half of their value by the time they are five years old. So, if you decide to buy a used car, a three-year-old car will cost you less in upfront expenses and maintenance.

In case you are planning to move from the suburbs to the city, you should sell all your cars and take advantage of public transportation. In this scenario, you do not need to worry about the costs of your vehicles at all. Buses, subways, and other public transportation can cost you around $526.80 per year with a senior discount. Just buy a monthly public transportation pass and enjoy car-free retirement.

Reduce your food costs.

Food is going to be your third biggest expense in retirement after housing and transportation.

On average most retirees spend around 20 percent of their income on food. According to stats, in the last 5years households run by people 65 or older spent $6,207 annually or $517.23 monthly on food. Those aged 65 to 74 spent on food $6,864 per year, and people over 75 spent $5,274. These food expenses include groceries, alcohol, and dining out.

Food costs will vary depending on your diet and habits. For example, people who prefer to buy organic produce will likely spend more money than people who do not.

If you are retiring on a small budget, you need to be creative with your food and how you eat.

Learn to cook

Eating at home more frequently will cost less than eating out. The reality is that the food you cook yourself is the cheapest food you eat. When you retire and have plenty of time there is no more excuse such as “I do not have time to cook”. After all, learning how to cook can become your new hobby.

person holding sliced veggies - retire well on a small budget

Plan meals in advance

I noticed that frequent trips for a few extra grocery items often lead to a higher food bill at the end of each month. That is why planning your meals in advance before you go grocery shopping is important.

For example, use a Monday morning to decide what dishes you want to cook at home during the coming week and additional snacks you will want to have in your pantry. After making a list, you can go grocery shopping just once for the whole week.

With current prices skyrocketing and inflation on a rise, it is getting tougher to find new ways to save on grocery shopping.

However, there are always ways to shop smart:

Shop seasonal food. Seasonal food is cheaper since there are no traveling and storage expenses involved. Purchasing seasonal produce is always cheaper than buying that same fruit or vegetable during its off-season. In addition to that, produce is fresher and tastes better in season, and is often perfectly ripe. So, take advantage of the low prices at harvest time.
Shop generic brands. The huge benefit of buying generic brands instead of name brands is saving money. Typically, generic brands are cheaper than name brands. The packaging may not be as colorful as a name-brand product, but often there is little to no difference between both products.
Shop the perimeters. Fresh foods are healthier than processed foods. In a typical grocery store layout, fresh foods such as fruits and vegetables, meat and fish, milk, eggs, and cheese are on the outside perimeter. But processed foods are typically stored in the center aisles.

Many foods in the center aisles contain preservatives that make them last longer on the shelf. If foods do not have any added preservatives, then it needs to be refrigerated to keep them fresh.

Try to avoid buying pre-cooked meals or processed foods to maintain a healthy diet and cut the costs of your groceries.

Learn to eat out for less

Cooking only for one or two seems unrewarding. However, if you are living on a tight budget, you should avoid eating out frequently. It is not that you should never eat out. But if you are retired and worried about inflation and rising food prices, reducing the number of times you go to the restaurant can help to reduce the cost of it.

There are still many ways to have the restaurant experience on a small budget:

Have your meal at home and then go for coffee and dessert.
Instead of eating out dinner, go to the same restaurant for lunch. Many restaurants have the same menu for lunch and dinner, but they mark up their prices for dinner.
Instead of eating out once a week, start eating out only once a month.
If you still want to go to an expensive restaurant, avoid ordering appetizers, alcohol, and dessert to save money on the highest price increase items.
Be selective, look for coupons or Groupons, and only go to places offering deals and discounts.
Go to happy hours at restaurants, where wine and hard liquor are less expensive, and the bar food can serve as dinner.

Check out this website for Restaurant Deals and Specials

Sign up for Groupon to receive coupons and discounts

Take care of health to reduce medical costs.

We all know that medical care is expensive, and the cost of healthcare is rising every year. According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2022 may need approximately $315, 000 saved (after tax) to cover healthcare costs in retirement.

Many health issues are age-related. Our body gets weaker as we age.

There are still many retirees who spend days lying on a couch watching TV and snacking. Some people gain weight when they stop working because they are not active and eat more because they are bored. Being overweight and lack of exercise put retirees at great risk of many chronic diseases such as diabetes, stroke, and cancer.

That is why regular medical check-ups are a must.

You should visit your doctor regularly and do not skip any recommended health screenings and tests. Keep an eye on your blood pressure and cholesterol level to avoid a heart attack or stroke.

If you want to eat healthy, follow a diet rich in whole grains, vegetables, fruits, and low-fat dairy products. Additionally, do not forget to shop smart and always read food labels to avoid foods high in cholesterol and saturated fat.

Another way to keep your medical expenses down is to stay active and fit. Start with developing good habits in your new life. Create an exercise routine and follow it thoroughly.

You do not need to spend extra money on expensive personal trainers or gym membership. Walking, running, or cycling outdoor is more than enough to stay in good physical shape for years. Explore your local walking and jogging trails. Those 30 minutes a day you need to spend walking can be done in your local park.

How to Stay Fit for a Healthy Retirement

Travel and entertainment on a small budget.

One of the most exciting parts of retirement is enjoying your new lifestyle.

Portugal coast - travel on a small budget in retirement

For many retirees, travel is a big part of that lifestyle. However, traveling is expensive. It includes hotels, air tickets, restaurant meals, rental cars, entertainment, tours, and more. According to stats, the average retiree spends $11,077 per year on travel.

Travel off-season. If you want to travel on a small budget, look for travel deals or travel off-season. In retirement, it is much easier to save money on travel because you have the freedom to travel when the best deals are available.

Find cheap accommodations. Instead of paying a lot of money for the hotels, look at websites like Airbnb, VRBO, or Vacation Rentals to see what they have to offer at your destination.

Check airline prices and find the cheapest flights. Sign up for free price alerts. Be flexible on dates and be flexible with your travel destination. Fly out early because the lowest-priced flights are the first flights in the morning. Fly on the cheapest days of the week – Tuesday, Wednesday, and Saturday.

Look for senior discounts. Many museums offer free days or evenings for visitors. When you do not have to work, it is much easier to visit museums on a weekday with a smaller crowd. Also, you can ask for a senior discount at museums, concerts, parks, and other tourist attractions. With available discounts and deals, you can save a lot of money and travel for less.

If you like to travel but are concerned about spending too much money, do not travel far. Drive a few hundred miles rather than fly to your destination. You will save money on air tickets, airport food, overpriced hotels, rental cars or taxi, currency exchange, and other charges.

Find free activities. As a retiree, you can find many great things to entertain yourself for less money. There are many free local summer concerts, fall festivals, events at libraries, or social activities at a senior center.

Retirement Travel Tips for Planning a Vacation

Final Thoughts

It is good to remember that money and wealth are important, but it is not everything. Happiness is not about being able to purchase a fancy car, a big house, or indulge yourself in luxury vacations. It is small and simple things such as family, friends, and having a purpose in life that make us happy.

How do retirees manage to live on a small budget? Share your ideas in the comments below.

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Should I Pay Off a Mortgage Before Retirement?

by Maggie 2 Comments

woman holding for sale sign - pay off a mortgage before retirement

For many of us, the mortgage debt is the largest in our budgets. That is why entering retirement debt-free seems ideal for many people.

Getting rid of a big debt could save you thousands of dollars in interest and free up money you can add to your retirement savings or just reduce your expenses in retirement.

It is my dream to pay off our mortgage before we retire. But I do not think it is possible. And I am not alone. According to stats, more and more people retire owing money on their homes. The Federal Reserve’s Survey of Consumer Finances showed that 37.6% of households of people aged 65 to 74 had a mortgage in 2019.

We all know that it can take decades to pay off your mortgage. But does it always make sense to pay off a mortgage before you retire?

Reasons to consider paying off your mortgage before retirement.

There are many reasons to consider when deciding should I pay off my mortgage before retirement or not:

You may be able to retire sooner.
You will have one less bill to pay each month in retirement.
It will provide you with more income in retirement.
Paying off a mortgage before retirement can reduce stress.

Also, it makes sense to pay off a mortgage before retirement:

If the house is worth more than the mortgage balance.
If the interest rate on your mortgage is higher than the rate of return on your investments.

Here is a related post you might want to read:

How to Use a Home Equity in Retirement

Benefits of paying off your mortgage before retirement.

Most people would be better off not having a mortgage in retirement. Getting into retirement with an unpaid mortgage will put a burden on your lifestyle.

When you are working, you have years of earned income to pay off a mortgage. But once you retire, you will be living on a fixed income. And when you start living on a fixed income, it is hard to pay off debt if you need to pull big chunks of money from your savings. Although, large withdrawals from retirement funds could push you into a higher tax bracket.

Frankly, it will make your retirement life a lot harder if you must continue to pay a mortgage when you are not working. In addition to that, you still have to spend money on property taxes, homeowner’s insurance, maintenance, and repairs.

The simple fact that you have lower housing costs means you will need less income to cover this essential expense. Also, you will have more retirement income left for other retirement expenses.

Being debt-free gives you more freedom and money left in your pocket to enjoy your golden years than struggling to pay off the mortgage.

Roman and I refinanced our house many times. But even with a low-interest rate of 2.5 percent, the mortgage payments take the biggest chunk of our budget.

Here is a list of benefits of paying off your mortgage before you retire:

Give you peace of mind
Provide you a place to live without worrying about monthly payments
Reduce your retirement expenses
Saving you money on interest

How to pay off your mortgage before retirement:

Refinance to a shorter-term loan. One way to pay off your mortgage faster is to refinance to a shorter loan term. For example, you can apply for refinancing your mortgage from a 30-year to a 15-year loan. That can put you on the fast track to paying off your mortgage.

However, it is important to remember that a shorter-term loan means higher monthly payments. Make sure your budget can handle the higher payments each month.

Refinance to a lower interest rate. Another smart option to reduce your mortgage debt is refinance it at a lower rate. In 2020 Roman and I refinanced our mortgage with Ameri Save Mortgage Corporation at 2.5 percent. It helps us bring down our monthly payments and save up to $500 a month.

Make an extra payment each month or each quarter. Look at your mortgage balance and figure out how much extra you can put toward your mortgage each month. Those extra payments can reduce your principal balance significantly.

Making an extra payment 4 times in one year could remove 10 years from your payoff date.

Every dollar you pay above your regular monthly payment helps speed up your payoff date. It does not mean that you have to start doubling up your monthly payments. Simply adding an extra $100 a month to the principal can speed up your payoff date for 5 years.

Switch to bi-weekly payments. Also, instead of sticking with the traditional monthly payments, you can start making bi-weekly mortgage payments.

When you switch to a bi-weekly mortgage payments program, you split your payment in half and pay twice each month. There are 52 weeks in a year. If you switch to bi-weekly payments, you end up making 26 payments which are equal to 13 monthly mortgage payments – one extra payment yearly.

With this strategy, you will be able to knock off a few years of your mortgage balance and reduce the amount of interest you pay on the loan.

Put extra cash towards your mortgage. Whether it’s a bonus, tax refund, salary raise, or inheritance, put every dollar towards paying down your mortgage debt.

Reasons not to pay off your mortgage before you retire.

Rushing to pay off your mortgage before retirement may not be a good idea for many reasons:

Paying off your mortgage early could trigger a penalty
You may be better off investing the money
You may need to borrow against your home equity later
You will be paying off your mortgage with savings

Tax benefits. Your mortgage interest is tax-deductible.

If you are still working and in the 35% tax bracket, every dollar you pay in mortgage interest saves you 35 cents in federal income taxes. Also, you save money on state income taxes.

A mortgage is a low-cost debt. A mortgage is one of the least expensive loans available.

If you have a credit card debt, it often comes with a higher interest rate than a mortgage. Do not rush to pay off a 2.5 or even 3.5% mortgage if you have credit card loans or other debt you are still paying off at 18 or 20% rates.

It is better to save for retirement than pay off a mortgage. As I mentioned above, mortgages are often the cheapest money you will ever be able to borrow.

Typically, mortgages have a lower rate and even fixed-rate, helping to ensure that borrowed money remains cheap for the next 15 or 30 years. That means people have the opportunity to put funds elsewhere, such as in savings and retirement accounts.

Thanks to compound interest, a dollar you save and invest today has more value than a dollar you invest 5 or 10 years from now. That is because your invested money will be earning interest on top of interest for a long time. For that reason, it makes more sense to start saving for retirement when you are younger rather than focus on paying off your mortgage.

What to do if you cannot pay off your mortgage before retirement?

Unfortunately, not everyone can pay off a mortgage. Retiring with mortgage debt is becoming a more common scenario.

person holding a house keys - benefits of paying off mortgage before retirement

To pay off a mortgage before retirement might not be realistic for everyone. If you are like me and worry about how to afford mortgage payments in retirement, there are several options to consider:

Downsizing. Your home is one of the biggest investments.

If you have been living there for a long time, your home went up in price and accumulated a lot of equity. One of the ways to get rid of mortgage payments and home maintenance bills is to sell the house.

If you cannot afford to pay off your mortgage, you might consider selling your home. You can sell the big house and trade it down for a smaller house or a condo. Or you can move to a cheaper area and pay cash for your new house.

Invest equity. Do you want to deal with the hassle of homeownership in retirement?

Maybe you rather spend time traveling and visiting family and friends. In this case, your option will be to sell your home, invest cash, and enjoy living on rent and mortgage-free.

Investing the cash from home sales will bring you additional income in retirement. If you let it grow for 10 years in your investment portfolio, and it might be enough to pay cash for your next house or a condo if you are tired of renting.

But many people would prefer to stay in their homes and retire in place. They want to remain in their neighborhood for life.

In this case, homeownership might provide several options to fund your retirement without the risk of stock market investments.

In this case, consider a reverse mortgage. Those people who have big equity built up in their homes could apply for a reverse mortgage. This type of loan can be also used to pay off the existing mortgage.

A reverse mortgage is also known as a home equity conversation mortgage (HECM). It provides income to retirees and does not require monthly payments. You still have to pay taxes and home insurance, and you will be responsible for maintenance.

The best part is that you will receive a portion of your home equity in cash without requiring you to move out. But the loan has to be repaid when the owner sells the house, moves out, or dies.

A reverse mortgage can be flexible, and you can take HECM as a line of credit (HELOC), lump sum, or annuity.

One option is to use HECM for your medical or long-term care expenses late in life when you run out of money.

Another option is to set up an annuity to increase Social Security and any other retirement income you will receive.

However, reverse mortgages can be complicated. There are many terms and conditions, and it is a relatively expensive way to borrow money. So, make sure to do your research to understand all the pros and cons, and talk to a loan specialist.

Your Guide to Reverse Mortgages

Should you pay off your mortgage before retirement if you could? Share your thoughts in the comments below.

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How to Cut Expenses Before You Retire

by Maggie Leave a Comment

woman with laptop - cut expenses before retirement

If you are near retirement age, these tips on how to cut expenses will help you save more and give you the freedom to retire sooner.

And if you are still working, you are in a great position today to improve your life in retirement because you still earn an income. Your remaining working years could be a great time to explore some smart options of cutting expenses before you stop working.

According to the Bureau of Labor Statistics, Americans aged 65 and older spend about $48,000 per year ($4,000 per month) on average.

In retirement, most of your money will be spent on 3 big categories – housing, transportation, and medical.

According to the Bureau of Labor Statistics Consumer Expenditure Survey, for adults aged 65 and older:

Housing represents 34% of spending
Transportation represents 16% of spending
Health care represents 13% of spending

1. Reduce housing cost.

I do not have to tell you that your housing costs eat up a big chunk of your money every month. Even in retirement, the cost of housing will be your biggest financial burden.

Bringing an unpaid mortgage with you into retirement will cause a lot of financial stress each month.

The cost of homeownership for the average American household is $13,153 annually without the cost of a mortgage.

Based on my own calculations, Roman and I spend $28,400 a year on mortgage, insurance, taxes, utilities, and maintenance. It takes 25 percent out of our annual budget without the cost of home improvements and major repairs.

According to statistics, the average retiree household spends around $17,472 per year ($1,456 per month) on housing expenses including mortgage, rent, property taxes, insurance, maintenance, and repairs.

Pay off your mortgage.

You will make your retirement life a lot harder if you must continue to pay a mortgage when you are not working. Plus, you still have to spend money on property taxes, homeowner’s insurance, maintenance, and repairs.

The simple fact that you have lower housing costs means you will need less income to cover this essential expense. In addition, you will have more retirement income left for other retirement expenses.

Retirees often have to withdraw money from retirement funds to cover their mortgage payments. Unfortunately, those withdrawals typically trigger more taxes.

Look at your mortgage balance and figure out how much extra you can put toward your mortgage each month. Those extra payments can reduce your principal balance significantly.

Also, instead of sticking with the traditional monthly payments, you can start making bi-weekly mortgage payments.

Refinance your mortgage.

Another smart option to reduce your mortgage debt is to refinance it at a lower rate.

In 2020 Roman and I refinanced our mortgage with AmeriSave Mortgage Corporation at 2.5 percent. It helps us bring down our monthly payments and save up to $500 a month.

Unfortunately, not everyone can pay off a mortgage. Retiring with mortgage debt is becoming a more common scenario.

If you cannot afford to pay off your mortgage, you might consider selling your home.

Downsize your home.

Are you an empty nester? Then it might be the perfect time to reconsider your living condition.

The smart choice would be to sell your home and move to a smaller home or condo. By reducing your housing costs today, you can get extra cash into your pocket before you retire.

Look at the advantages of a smaller home or condo:

A smaller mortgage
Lower property taxes
Reduced homeowner’s insurance premiums
Fewer maintenance costs
Less yard work, especially if you get a condo

To help you get started, here are a few useful articles you may want to read:

2. Reduce transportation cost.

According to statistics, the average retiree household spends around $7,492 a year ($624 a month) on transportation.

The cost of transportation is likely to drop when you stop working. While you will not spend money on commuting anymore, not all your transportation expenses will disappear.

We all know that cars are expensive. Not only you have to pay for gas, maintenance, and repairs, but you also need to insure them. With inflation and gas prices going up every year it will make your life on a fixed income more difficult.

If you need a car, your goal should be to spend the least amount of money on a reliable car.

Here are a few options of how to reduce the costs of your vehicles before you retire:

Downsize your vehicles.

One of the best ways to reduce the cost of transportation is to downsize your vehicles.

If a large chunk of your income goes into maintaining several cars or driving luxury cars, I would suggest downsizing or choosing a different car. Going from two cars to one or downgrading to a less expensive car can help you significantly reduce the costs of gas, auto insurance, and maintenance.

According to LendingTree, the cost of a new car, including additional costs like fuel, insurance, and tires is between $23,903 (a small car) to $57,267 (a full-size car) per year.

However, if you have already paid off your car, it makes more sense to keep it as long as you can. That way, you do not need to worry about monthly car payments. Instead, you can take that money and use it to pay down any other debts or save more for retirement.

Buy a used car.

Many people choose to lease their cars because they want to have a new car every few years. Leasing works better if you are on the road for business and can deduct the lease payments.

But if you are near retirement, buying a good used car rather than a new one for the image will help you afford retirement sooner.

Most of the vehicles lose about half of their value by the time they are five years old. So, if you decide to buy a used car, a three-year-old car will cost you less in upfront expenses and maintenance.

Between paying on average $40,000 for a new car, you can save a lot of money by spending on a used car only $22,351(at the end of January 2021).

A useful post from LendingTree: Should I Buy a Used or New Car?

Use public transportation.

In case you are planning to move from the suburbs to an urban area, you should sell your cars and take advantage of public transportation.

In this scenario, you do not need to worry about the costs of your vehicles at all. Just buy a monthly public transportation pass. And when you want to go on a road trip, simply rent a car.

Use car-sharing services.

Most urban cities also have car-sharing services that give you easy and affordable access to a car for temporary needs.

Also, using services like Uber or Lyft can help you save money without the regular monthly costs associated with owning or leasing a car. With the gas prices are going up every year, you do not need to worry about that additional expense.

3. Get rid of a high-interest debt.

High-interest credit card debt can be one of the biggest burdens on your financial life in retirement.

Most of the credit cards come with high-interest rates – 18 to 20 percent.

credit card - cut credit card debt before retirement

If you carry a big balance on your credit cards, you will be stuck paying that required minimum every time your credit card bills come due.

Keep in mind, that if you bring a mortgage, high-rate credit card debt, and maybe a car loan into retirement, you will put a lot of pressure on your limited finances.

There are two most popular debt payment strategies:

The snowball strategy
The avalanche strategy

The snowball strategy – you are paying off debt from smallest balance to largest.

First, you focus on paying off the credit card with the smallest balance. Then you move on your next smallest credit card bill until all credit card debt is paid off in full.

The avalanche strategy – you organize your payments by interest rate – from high to low.

First, you pay off debt with the highest interest rate as quickly as possible (even with extra money). Then you move on to the card with the next highest interest rate.

I recommend focusing on your highest-interest debt first because the longer it takes you to pay it off, the more money you will pay towards interest.

And if you can help it, do not add any more debt to the pile while paying off old debts.

A helpful post:

How to Pay Off Debts Before Retirement

4. Review your insurance coverage.

Getting closer to retirement might be a good time to review how much you spend on insurance and how to cut that expense.

Life Insurance

First, you might look at your life insurance and decide if you still need it.

The main purpose of life insurance is to replace lost income. If your kids are grown and you no longer have any dependents who will need financial help after you die, it might be wise to drop policies. Paid-up policies can be sold.

If you have a term life policy, make sure you understand whether the payout at your death is worth the cost of the premium you are paying today.

Auto and homeowners’ Insurance

You might also look at your deductibles for your vehicles and homeowners’ insurance policies.

When you are still working, it makes sense to set your deductibles low. But low deductibles increase the amount you pay in insurance premiums. So, when you raise your deductibles, you will pay less for your vehicles and homeowners insurance premiums.

Once you retire, you might want to pay less for your insurance policies so you will have more money to cover your daily expenses.

Healthcare

In retirement many people will spend most of their money on health insurance, medical services, and drugs, as they age.

I my articles I often write about the cost of medical expenses in retirement. Because I want to remind my readers that healthcare is going to be their second biggest expense after housing, and they need to plan for it.

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple may need around $300,000 saved (after tax) to cover healthcare costs in retirement.

Here is a helpful article you might want to read:

How to Plan for Rising Healthcare Costs

Most people will be eligible for Medicare at age 65. But if you plan to retire before age 65, you will need to find a separate plan to cover your medical expenses.

Individual health insurance is expensive and could cost more than $1,000 a month. Make sure to shop around for the best prices.

Even being eligible for Medicare brings its own set of challenges because it does not cover all medical expenses.

Medicare is not free. It does not cover premiums, deductibles, co-pays for doctor visits, dental and vision care, long-term care, personal care, and other expenses.

Long-term care insurance is the most recommended way of planning for future expenses.

Long-term care insurance will help you not be a financial burden on your family if that time comes. It will cover nursing homes, assisted living facilities, and in-home care.

After all, you do not want to leave your husband or wife with nothing because the entire nest egg was spent on taking care of you.

Final Thoughts

If you do not know what your expenses look like in retirement, it will be difficult to predict how much money you need to save for the future.

But if you can get a sense of what to expect, it will be relatively easy to cut your expenses in these categories before you retire.

Have you had more ideas on how to cut expenses before retirement?

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Your 2021 Year-End Retirement Planning Checklist

by Maggie Leave a Comment

woman with laptop - end of year retirement checklist

It is hard to believe that 2022 is around the corner! When it comes to finances, 2021 was a challenging year. Many people continued to work remotely, many faced unemployment, and many others were forced to early retirement.

The most important lesson I learned from the global pandemic is that it pays to be prepared. As 2021 comes to an end, I want you to make sure that you take some time and complete your year-end retirement planning checklist.

This is my list of 7 tasks to complete before this year comes to a close.

1. Look at your spending.

The end of the year is a great time to look at your personal spending and see where your money is going. This year has been full of change and adjustment. With many people working remotely, there is a good chance your spending habits have changed as well.

How did you do this year? Have you tracked your spending against your budget?

Did you get a full picture of your finances and know how much money you have saved (or not) in 2021?

If you have struggled this year, decide how to improve your financial situation for the next year. Are there debts you should be making a priority to pay off? Look at your budget and decide if there were parts that were difficult to stick to.

Look at your credit card and bank statements and see what expenses could be avoided this year and plan to cut them in the next year.

Keep in mind that balancing your income with your spending is the key to saving more money. Make sure you have a budget set up for the next year and decide on how much money you need to save in 2022 to meet your retirement goals.

2. Look at your retirement planning goals.

Calculate how much is your nest egg.

When you are near retirement, it is important to know how much money you will need to live comfortably for the rest of your life.

If you still have no idea how much money you will need, look at your current expenses and then evaluate how they might change in the future.

When you retire, you do not need a lot of things that you did when you were working. Generally, the costs of commute, take-out lunches, and business clothes will go down. However, you might start spending more money on travel, hobbies, and activities.

Calculating your nest egg is easy if you already have a budget and know how much you spend now. The next step is to get a clear picture of how it might change in the future based on your retirement lifestyle.

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Another option to figure out how much money you need to retire is to replace 70 to 80 percent of your annual pre-retirement income. For example, if you earn $70,000 per year before retirement, you should expect to live off $49,000 to $56,000 per year.

Review your savings and set up goals for 2022.

For many of us, conducting an end-of-year review of retirement savings is the best way to take steps on significant changes before the next year.

coins on the table - retirement saving goals checklist

The first step is to look at how your retirement saving has stacked up. Have you maximized your retirement plan contributions? Have you increased your retirement contributions if your income has gone up during the past year?

If you have not this year, make it a goal to increase your contributions to retirement plans such as 401(k), IRA, and Roth IRA next year.

The important thing to remember is that retirement plan contributions allow you to save a lot of money on current taxes and not to miss any employer contributions.

When you are a few years away from retirement, being short on retirement savings can be problematic. Many of us spend less money due to the pandemic and working from home. We all spend less on Starbucks coffee, commute to work, eating out, vacations, and more. Stash that money into retirement savings!

Make it a next year’s goal to reduce your current spending, so you can put more money into your retirement savings.

Check your progress on getting out of debt.

The end of the year is a great time to sit down and check your progress on paying down debt.

When you are working, you have years of earned income to pay a mortgage, credit card, student, or any other kind of loan. But once you retire, you will be living on a fixed income.

When you start living on a fixed income, it is hard to pay off debt if you need to pull big chunks of money from your savings. Although, big withdrawals from retirement funds could push you into a higher tax bracket.

Being debt-free gives you more freedom and money left in your pocket to enjoy your golden years than struggling to pay the mortgage or other debts.

To pay off all debt including a mortgage might not be realistic for everyone. However, the less debt you have, the better you are prepared financially for retirement.

3. Review your retirement income.

In my year-end review, I always find time to look at our future retirement income.

When we are working, we typically have a single employer and a single source of income – our salary. In retirement, everyone has different sources of income – Social Security, pension, part-time job, investments, and retirement savings (401k, IRA, Roth IRA, Roth 401k).

I usually look at our current Social Security, retirement, and investment funds statements to get a clear picture of our potential retirement income. I wanted to make sure that we are on track to our retirement goals and have enough money to cover our living expenses when we stop working.

To make your assets last through the next 20 or 30 years, use the rule of thumb to withdraw 4 percent of your retirement money annually.

For example, if you have $500,000 in retirement funds, you can spend roughly $20,000 ($500,000 x 0.04) per year when you retire. Add this number to your Social Security, pension, and other savings, and calculate if it is enough to support the retirement of your dreams.

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4. Set a target retirement date.

When do you plan to retire? Is it in the next 3 to 5 years? We all need to plan for the day when we are ready to retire or can no longer work.

Looking at your target retirement date and retirement income, you can determine if you have enough money saved for the next 20 to 30 years. If it is not enough for a comfortable retirement, move the date and save more into your retirement funds.

5. Think about the future medical cost.

Health care is expensive. Unfortunately, many baby boomers forget to include it in their financial plans. Medicare will cover most of your routine healthcare costs if you retire at age 65 or older. Unfortunately, it does not pay for all medical bills, and it does not pay for long-term care at all.

Underestimating health care expenses or how to pay for long-term care can be a big financial mistake.

laptop on the table - end-of year retirement checklist

Think about your future medical cost and find ways to protect your retirement savings. Consider buying long-term care insurance because it can help you pay for home health aides in your late years. If you buy long-term care insurance now, your premiums will be lower than if you wait several years.

We have not purchased any long-term care insurance yet, but looking at opening an HSA account. Many financial advisors recommend opening a health savings account (HSA).

The 2021 HSA contribution limits are:

$3,600 for individual coverage
$7,200 for family coverage

The money you can contribute to HSA is tax-deductible or pre-tax. And any increase in the value of your account is free from federal taxes. But it has to be used for qualified medical expenses if you do not want to pay additional taxes on your contributions.

You can put money into HSA every year until you enroll in Medicare benefits. After that, you are no longer allowed to contribute. However, money that you do not spend will be accumulating in this tax-free account until you need it in retirement.

6. Rebalance your portfolio.

Take the opportunity to review your asset allocation and make sure your portfolio is diversified and invested for growth. You should have a mix of stocks, bonds, mutual funds, and other assets that fits your retirement goals.

The important thing to remember is that a well-balanced portfolio will help you weather market downturns. Also, it will generate a retirement income to cover your living expenses when you are not working.

It can be tempting to stay away from stocks to reduce the risk of losing money in your retirement funds. But stocks provide growth and investing for growth is important. If you retire at 65 and spend 20 years in retirement, you need to have enough growth in your portfolio to make money last that long.

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7. Review your will and living trust.

Another important part of your year-end retirement checklist is the status of your will and/ or revocable living trust. Keep them up to date and make sure you have suitable executors, trustees, and guardians in place.

Additionally, you will want to make sure your list of beneficiaries is up to date as well. If you have welcomed a grandchild to the family do not forget to add his/her name to the list. Also, if there has been a change in the family such as a marriage, divorce, or death, make sure to update your beneficiary list.

Looking ahead to the new year

The world is still in the middle of the covid-19 pandemic, but there is an economic recovery. I am not sure what to expect of the upcoming year though I remain hopeful that things will start turning up eventually.

Our retirement goals for the new year should be simple – keep working and saving money for retirement. And for the rest of the world, my hopes are much like everyone else’s – that we get out of this global pandemic soon and get back to our normal life.

What is on your year-end retirement checklist? Have done any year-end review of your retirement goals?

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How to Travel on a Budget in Retirement

by Maggie 4 Comments

man in the field - travel on a budget in retirement

Traveling in retirement is the most common dream. Ask anyone about retirement plans and you will find something in common – a desire to travel and see the world.

According to the Transamerica Retirement Survey, almost 70 percent of American workers want to travel the world in retirement.

Why? Because retirement is the ideal time of life to travel, to enjoy the views and taste of the places people could not afford to experience when they were younger. But travel as a dream often gets left unfulfilled because many people worry about the high costs of travel.

According to stats, an international trip typically costs up to five times higher and lasts three times longer than a domestic trip.

For those people who are still working, travel often means a rushed one-week or maximum of a two- week vacation. But when you retire you have more free time on your hands. And having more time on your hands means being more flexible. You can relax and enjoy your destinations at a slow pace. You can travel as long as you choose, and you can time your trips the way you want.

However, you have to be careful about how much you are spending because you are no longer receiving a regular salary and living on a fixed retirement income.

In this article, I have provided some helpful tips for your future travels in retirement and how to budget for it.

Pick destinations that off-season.

One of the biggest ways to cut your travel expenses is to travel during the off-season. You can cut the costs on plane tickets, hotels, food, museums, and tours. When places on your bucket list are less crowded, they are also less expensive.

For example, summer (and winter in some places) is the busiest travel season for tourists in Europe. Therefore, spring and fall are good for traveling on a budget. You can enjoy mild weather, smaller crowds, natural beauty, and low prices. However, the Caribbean islands are a good place to travel during the summer. It is cheaper because of the hot weather and hurricane season.

Keep expenses low by traveling slow.

All travel blogs recommend traveling slow if you want to cut the cost of travel expenses. By staying put in one place longer will allow you to reduce the costs of tickets and accommodations. For example, going on a trip to Paris would cost me about $1,350 from Boston airport (round trip ticket) and a mid-range hotel about $250 per night. Overall, I will spend around $2,850 for transportation and accommodations on a one-week trip.

I can stretch that trip to two weeks and the price will go up only $1500 since I do not have to pay for the plane ticket for my second week. But if I choose to travel during the off-season, I will only pay half price for the same travel expenses.

Paris is a very expensive city, but you can keep travel expenses low by renting a room or an apartment instead of staying at the hotel. So, if I prefer to rent an Airbnb apartment the cost would go down to $100 per night and I can cut expenses on food and eating out.

Instead of rushing through the city or country, take more time and try to experience the destination more like local people would do. The trick is to spend more time in one place so you can reduce your per-day travel expenses by spreading the cost of an airplane ticket over a long trip.

Cut travel costs on lodging.

The best way to avoid costly travel in retirement is to cut the costs of your lodging. Everyone likes to splurge on the fancy hotel. But if you are retired and traveling on a budget it is better to reduce your expenses by finding inexpensive lodging. Depending on the type of accommodation you choose and the city (or a country) you are visiting, you could be spending from $50 to $300 or $400 per night.

B&Bs (bed and breakfast) often offer a better price than a hotel, homemade breakfast, and plenty of local flavors.

Airbnb is another popular option for travelers today offering to rent a room, a beautiful apartment, or the whole house. Renting an Airbnb is much cheaper and ideal for staying in one place for several weeks or even months. You can buy food at local stores and prepare it at home or ask your host for budget-friendly local places to eat. Every potential host has a profile with pictures of their accommodations and references from previous guests.

Debby and Michael Campbell have been traveling since 2013. They blogged about their travels at “Senior Nomads”. To help to budget their travels they stayed at over 270 Airbnb’s and called them home while traveling through 85 countries.

If you want to cut costs on lodging use vacation rental websites such as Airbnb and VRBO to stay in one place longer and cheaper.

Airbnb

VRBO

Another way to save money on lodging is house sitting or house swapping. It became very popular among travelers of all ages.

House swap or house exchange.

If you do not plan on selling your home, you can put it to work when you are away traveling. The typical house exchange is an arrangement where you swap houses with somebody else in another country or city. It is a great way to vacation if you want to stay in one place for several weeks or a month.

For example, I live in Boston and planning to spend three weeks in Madrid. If there is someone from Madrid who wants to visit Boston at the same time, we can do a house swap. That way, I will save money on lodging and get to experience a new city in Spain. Websites like Homestay.com and Lovehomeswap.com make it easy to find an available home and provide safety measures for your peace of mind.

Cut travel costs on transportation.

The cost of airline, train, and bus tickets, as well as renting a car or using a taxi, makes traveling expensive. But there are a few strategies you can use to make your traveling in retirement more affordable.

mini-bus on the road - cut the costs of travel in retirement

Airplane tickets became very expensive with an additional cost of reserving a seat, extra fares for check-in luggage, carry-on bags, food, in-flight entertainment, and more.

The best way to find a cheap flight is to compare prices. We use Skyscanner, Kayak, and Expedia to compare ticket prices and make sure we get the best deal.

Another tip is to avoid buying tickets on Friday, Saturday or Sunday – these days are the most expensive to book airline tickets. Wait until Monday, Tuesday, or Wednesday when there are not so many people browsing the internet to book the flights.

Even we are not retired yet, we always try to save money on airline tickets by flying during the middle of the week. We fly on Tuesdays or Wednesdays because no one wants to fly on these days and the airline tickets are the cheapest.

Another way to save money is to fly an early-morning or late-night flight. You can significantly cut the cost of your airline tickets if you choose to fly between 5 a.m. and 7 a.m. or after 8 p.m. Prices are also cheaper if you fly after the major holiday or on the day of the holiday. Once we flew back from Europe on the 4^th of July day and Boston airport was completely empty.

There are a few other ways to cut costs on airline tickets:

Let the airline choose your seat.
Bring your own food.
Do not purchase in-flight movies and TV shows.

Once you get overseas, you can save money on popular budget airlines like Ryan Air, Easy Jet, or Wizz Air. You can fly between European cities for as low as fifty dollars.

Traveling in Europe is wonderful because just within a few hours you can be in another country. If you do not want to fly, you can choose fast and reliable public transportation such as a train or bus. If you are on a tight budget, buses are almost always your cheapest option. Reclining seats, Wi-Fi, clean toilets allow you to travel in related comfort if you do not mind spending hours on a highway.

Trains, unlike buses, go straight through the countryside. So instead of staring at the never-ending highway, you can see more of the quaint towns and scenic landscapes.

But traveling by train can cost more than by bus unless you have a rail pass or book your tickets a few weeks in advance. The best way to buy European train tickets is through websites like Trainline, Omio, or RailEurope.com.

For example, if you travel around Italy, the high-speed train tickets will be more expensive (around 50-70 euro per ticket) than Italy’s regional trains.

Rick Steves gives the great overview of Italy rail passes and train tips.

Cut travel costs on food.

Food is another big travel expense. Eating out three meals a day or just dining at fancy hotel restaurants can take a big bite out of your travel budget. According to Business Insider reports, you can expect to spend an average of $71 per person at the fine dining restaurants (think ‘The Capital Grill’) and that does not include tax and tip.

Most people like to have pleasant dinner with appetizers, entrée, and dessert and splurge on expensive wine or cocktails. However, many restaurants have the same menu for lunch and dinner, but they mark up their prices for dinner.

One of my favorite ways to save money on food while traveling is to eat a big lunch. Eating a bigger lunch will fill you up, and you can still have a small and affordable dinner at the end of the day.

variety of snack on table - cut the costs of food on retirement travel budget

Another way to cut travel costs on food is to go and shop at the local markets. You can make your own breakfast or cook dinner with fresh ingredients instead of spending money at an expensive restaurant. During our travels, we like to experience the local cuisine. That is why we prefer to find mom-and-pop diners or eat at local cafes and bakeries.

When we travel and stay in an Airbnb apartment instead of a hotel, I like to take advantage of the kitchen, refrigerator, and microwave. We typically eat breakfast at home, then go sightseeing and stop somewhere for a big lunch. At the end of the day, I will cook dinner and then we will go out to have a few drinks at a local bar. I have learned that eating out for every single meal puts a lot of pressure on your travel budget.

Cut travel costs on activities and entertainment.

No matter where you travel, there are so many things to do that will cost you little or no money at all. If you are first time in the city, check out the popular tourist attractions. Many historical buildings and sites do not cost money to view. Hiking the trails, spending time on the beach, or checking out nature usually does not cost you money. If you bring your own lunch and water, you can have an amazing day outdoors without paying a fortune.

Many cities offer free local walking tours. But you will need to do research and plan ahead of time to reserve your spot.

9 Best Websites to Book Free Walking Tours

Before going on a trip, I use a few websites to book our sightseeing or day tours and other activities:

Viator

Get Your Guide

Keep travel costs low and cut on buying the stuff.

When you travel on a budget in retirement, you should prioritize your spending. If you want to keep the travel costs low, choose to spend money on experiences rather than souvenirs or trinkets. When you are on the road for many months, you do not need to own many things. You can save a lot if you cut on buying the stuff and focus on experiences and living life.

When you experience something, you create longer-lasting memories. Browse local markets without buying anything, take a photo to preserve your travel memories, and post it on Instagram or Facebook.

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Final Words

As you can see, there is a lot to think about traveling in retirement. Whether it is a short road trip or a long journey around the world, you need to prepare for it thoroughly.

Are you planning to travel during retirement? How do you budget for your travels?

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