Do you know how much money you need to afford retirement?
Retirement can be expensive. According to financial advisers, you will need close to $1 million saved to afford a comfortable retirement.
But what if you don’t have that kind of money saved?
Don’t panic if you’re retirement savings aren’t where you thought they might be.
There are still many choices you can make to help you retire on your terms. Small cuts in retirement spending today can multiply into big amount of money you need to retire in near future.
If you’re in your 50’s or 60’s there is still time to reorganize your life, so you can afford retirement. The less you spend now, the sooner you can quit that job and start living the life of your dreams.
Here are 5 smart ways you can reorganize your life to afford retirement:
1. Downsize your home
Many of us plan on downsizing, with the hope of freeing up some extra cash for retirement.
The true cost of home ownership is high. When considering how much you can afford, you need to look beyond mortgage payments for the true cost of home ownership.
Only with time, we realize how costly it is to maintain a house. If you happen to live in one of those beautiful, big houses you know it comes with a catch – you need to pay up to keep your home in good condition. A big house will take a big chunk out of your budget.
Everyone should recognize a list of expenses as part of owning a home:
- Monthly mortgage payments of principal and interest
- Real estate taxes, paid annually or in installments
- Homeowner’s insurance – paid monthly with your mortgage or paid annually
- Utilities, including electricity, heat/gas, cable, wireless, etc.
- Water and sewage, which may be billed separately or together
- Trash and garbage collection
- Regular ongoing maintenance, which could include cleaning your furnace, cleaning your gutters, changing filters in your air condition units, chimney sweeping, lawn and yard work, snow removal, replacing caulk in the bathrooms, changing light bulbs, and more.
- Repairs and maintenance, including the interior and exterior of your home, replacing carpeting or flooring, replacing appliances and other items that break, replacing roof shingles or the entire roof as needed, repainting exterior and interior.
- Renovation or home improvement projects, which could include complete re-do of the house layout or just a kitchen or bathrooms.
A lot of these details often go unnoticed for many years when people are gripped by the excitement of living in their very own home. Also, the size of your home-related expenses depends on the size of your house.
The cost of home ownership for the average American household is $13,153 annually without the cost of mortgage.
I have calculated that Roman and I spend $28,400 a year on mortgage, insurance, taxes, utilities, and maintenance. These costs take 25 percent out of our annual budget without the cost of home improvements or major repairs.
But what if you’re getting closer to retirement and have dreamed of living the life of leisure in a beach home. Could you afford that lifestyle with money you have saved for retirement?
The smart choice would be to sell your home, and move to a smaller home or condo, so you can get extra cash into your pocket today.
Consider the advantages of 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
What is the cost of living in your current hometown? Do you live in a high property tax state?
You can move to a less expensive town, cut on your real estate taxes, and put more money into your retirement funds.
Roman and I want to retire in 7 years, and we talk a lot about downsizing our home. We live in a high property tax town, and the cost of living in Massachusetts is high. Our daughter moved out and we don’t need to live in town with very high taxes. We are thinking about selling our home when we retire, moving closer to her, and renting an apartment for a few years before we decide on committing to another property .
We bought our home in 2002. Over the years we did several big and small renovation projects that increased the value of our house but came with $120,000 debt in construction loans.
Right now, we are trying to stay away from any additional renovations and focus on paying off the mortgage. Our current mortgage rate is low – 3.5 percent. In 2019, our mortgage was reduced to $241,000. The goal is to reduce our mortgage to $185,000 by the time we retire.
When we sell our home, the extra cash we get from the sale, after paying off the remainder of the mortgage, real estate taxes and realtor’s fee will go to our retirement fund.
2. Reorganize your possessions
We’ve all spent years collecting lots of stuff in our homes. Do we really need all of it?
Rather than continuing to accumulate more useless things, we should think about how to save money for the lifestyle we want to afford as retirees.
Between buying a new dining set or living room leather coach I would prefer to save money for a trip to Italy or a Danube river cruise. There is nothing wrong with wanting to buy new furniture. However, if you buy it, you should understand that it eats into your retirement budget.
I am sure that many of us have a hidden stash of cash in our homes. It’s all those possessions we no longer need or want. We can turn those things into cash by planning for a yard sale or selling them on eBay or Craigslist.
If you are planning to move to a smaller home or condo in the next 5 years, start with an inventory of your home’s big and small items you’d like to sell. Go through every room and make a list of things you’d like to sell, donate, return to family members, toss or recycle.
I have already started the process of reorganizing our home for future downsizing. When our daughter moved out, I sold several pieces of her bedroom furniture on Craigslist.
Every year I try to donate or toss extra stuff we keep collecting in our home. Many things we don’t really need but receive as gifts during the holiday season.
I keep in mind that one day we will move to a rental apartment or smaller condo, and I don’t want to waste money on renting a storage unit. It means that we need to bring with us only furniture and other valuable items which will fit to a smaller place. The more we sell or donate now, the less there is for us to haul to our new location.
These regular de-clutter exercises also help me realize how much we already have and think more carefully about any new purchases for our home. This means more money saved for retirement today!
3. Downsize your vehicle
Downsizing your transportation might be another way of finding more money in your pocket so you can afford retirement.
If a sizable chunk of your income goes into maintaining several cars or driving luxury cars, I would suggest downsizing or choosing a different car. The savings on insurance, gas, and maintenance will significantly reduce how much you need to save for retirement.
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 getting closer to retirement, buying a good used car, rather than a new one for their image will help you afford retirement sooner. In the end, the cost of buying should be less expensive than leasing a car in the long run.
Another option to consider for retirement is to move close to an urban area and take advantage of public transportation. In this scenario, you might not need a car at all. When you want to go on a road trip, simply rent a car.
Most urban cities also have car sharing services that give you easy and affordable access to a car for temporary needs without the regular monthly costs associated with owning or leasing a car.
4. Move somewhere much more affordable when you retire
Did you think about where do you want to live when you retire?
One of the ways to afford retirement is to relocate to a more affordable place to help stretch your retirement savings. If you own property in an expensive market, you can sell it, buy a much nicer home in cheaper area, and still have a big chunk of cash to live off.
Climate and weather might be other factors to consider when you think about reorganizing your life to afford retirement. Moving to one of the southern states will help you stay active longer than in a cold climate.
You can even downsize your clothes and sell all your boots, scarves, warm sweaters, and winter coats before moving to a warmer place. The cost of heating your home will go down, but your air conditioning bill will get higher.
You’re getting closer to retirement and dreaming about traveling. Traveling can be very expensive.
But have you ever consider buying an RV?
I have read that many retirees prefer their new adventurous life on the road. For many of them this is the perfect way to see the country and traveling where and when you please. You can say goodbye to your mortgage, property taxes, homeowner’s insurance, maintenance, yard work, and other homeowner headaches.
However, you have to consider the cost of buying RV (which could be $60,000 and higher) and the costs for gas, insurance, repairs, food and expenses of being on the road. Compare the cost to a home that could be already paid off or nearly paid off and find the financial benefit.
Have you thought about retiring abroad?
If yes, you’re not alone. Thousands of Americans are finding the home of their dreams for a fraction of the price by moving to Mexico, Costa Rica, Belize, Chile, Colombia, Dominican Republic, Ecuador, and more. There are many ex-pat communities sprung up in these countries where you can find help making a transition to your new life.
5. Take care of your health
Health care costs seem to go up every year. Many experts say that most retirees underestimate their future health care expenses.
Health care in retirement is not free.
Yes, Medicare provides health insurance, but it doesn’t pay for all medical costs and it doesn’t pay for long-term care at all. On average, you can expect Medicare to cover only 50 percent of your health-related expenses. A sudden medical emergency or serious illness can wipe out your retirement savings.
Think about how to reorganize your life so you can become healthier. What you eat and how often you exercise will impact who you are in 10 or 20 years.
If you are not active or eat poorly, now is the time to build new healthy habits. Walking is an easy and simple way to stay fit. You can turn it into a social activity by finding a walking buddy or join a local walking club. Mix up your routine and add a couple of days of yoga or Pilates.
Being active and eating right can add more years to your life and save money on future medical expenses.
I like to cook and prefer to shop at good grocery stores to avoid eating in restaurants or buying lunches. This way I know that we eat healthy food. Also, I review our budget every year and notice that our decision to cut on eating out saves us a lot of money.
We used to spend $100 to $150 for a nice dinner in Boston once a month. If you add buying lunches for the two of us twice a week, it will add another $40 to $60 per week. Overall, we would spend $4,680 a year on eating out.
Since we are getting closer to our retirement, we agreed on reorganizing our lifestyle and cut on the habit of dining out regularly. Instead, I buy groceries at Whole Food or Wilson Farm stores, cook homemade meals, and add extra money to our retirement savings.
Taking care of your health now is important because you can live a long, healthy and happy life in retirement.
Don’t forget to visit your doctor, get regular check-ups and screenings, so that if any problems get caught early you can do something about them.
Putting it all together
None of us really want to think about the idea of getting older. But it’s something we can’t escape. We spend most our adult years working, saving, investing and preparing for the golden years. Some people may want to continue their lifestyle just as it is today. But others may plan to drastically change everything and go with something new and adventurous. Or you’re somewhere in between.
Nobody wants to retire and start worrying about running out of money during your golden years. Learn how to find happiness on less, so you can start enjoying your retirement sooner rather than later. But whatever ways you decide to reorganize your life to afford retirement, make sure that it makes you happy.
Can you afford to retire and live the life of your dream? Have you thought about the ways to reorganize your life to afford retirement?
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