Do you know how much money you need to live on in retirement? Have you been honest with yourself?
Everyone wants to have a happy retirement without the worry of not having saved enough or spending your savings too quickly.
Before you retire, look at your current expenses and see how much you will need when you leave the 9-to-5 world. Be honest about your retirement savings and calculate if it is enough to support you for the next 20 or 30 years.
Fortunately, a happy retirement does not always come with spending a lot of money. It only takes several steps to reduce retirement expenses so you can live well on less money.
Explore 15 ways to live on less in retirement:
1. Stop saving for retirement.
Once you retire, you no longer must save for retirement. If you have been saving 10 or 20 percent of your paycheck for decades, you no longer have to do that.
You do not need to save thousands of dollars to your 401(k) or IRA retirement accounts each year anymore. This chunk of money can be eliminated from your budget. It is time to start spending your savings.
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2. Save money on commute.
Once you retire, you do not need to commute to work every morning. This means saving money on car parking, maintenance, and gas.
Every year we spend over $6,000 on commute including parking, maintenance, fuel for 2 cars, and T-passes for the subway to get to Boston. When our commute is over, we can save a lot of money every year.
3. Do not buy expensive clothes.
When you stop working and spend many hours at home or in your garden, there is no need for ‘a dress to impress’. Say goodbye to your business clothes and wear something comfortable for your new daily activities.
I know that I will save some serious money when I stop buying expensive clothes, shoes, and accessories for work. My new outfits will be something simple and comfortable and what I want to wear. The best part is that I will spend less on clothes and more money on fun stuff, travel, and activities.
4. Downsize to a smaller home.
Homeownership is one of the most expensive categories on the retirement budget. That is why downsizing to a smaller home is a smart way to lower your monthly living expenses.
Moving to a smaller home will help to reduce utility bills, cost of maintenance, repairs, and cleaning. If your current home is paid off, you can use available home equity to buy a smaller home without taking on another mortgage. Moreover, moving to a smaller home will save you more money in the long run.
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If you do not plan on downsizing, consider other housing alternatives to reduce monthly expenses:
- Rent out a room in your home.
- Rent out your garage.
- Take a roommate and split the mortgage payment.
- Make money with Airbnb and rent out extra rooms in your home.
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5. Relocate to a low-income or no-income-tax state.
Moving out of a high-income tax state in retirement is one of the best ways to stretch your retirement funds. But you still have to ask yourself if it worth it. Probably it does not make any sense to move If you do not pay a lot of state income tax today and do not expect to pay more when you retire.
Living in a high-income tax state like Massachusetts, we paid a maximum of $6,200 over the years. I am not sure if it worth it for us to sell our home, hire movers, find a new place to start a new life somewhere else only to reduce a tax bill.
However, if we paid $20,000 or more in state income tax and expect to pay the same amount in retirement, I would plan on moving to a low-income or no-income-tax state.
Article: Perils of Moving to a No-Tax State
6. Reduce insurance premiums.
Before you retire, you should plan how to live on less money. One of the ways to cut your retirement expenses is to reduce insurance premiums. You can ask your home insurance company for a senior discount.
Many home insurance companies provide discounts for retirees because they spend more time at home which reduces the risk of fire, flood, or robbery.
Another way to reduce your insurance premiums is to tell your car insurance company that you will no longer be driving to work. The more you drive, there are more chances for you to get into an accident.
Daily commuting is a big risk factor because car collisions typically happen during periods of heavy traffic. When you retire, contact your car insurance company, and ask them if you qualify for a low-mileage discount.
7. Downsize your vehicles.
We own 2 cars, and last year we spent $4,950 a year (or $412 a month) on license fees, insurance, maintenance, repairs, and gas. We even had spent more money when our cars were financed with loans.
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.
To live on less money in retirement, you should downsize to one car or no car at all if you want to move to the city and use public transportation.
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8. Reduce your bills.
There are many ways to reduce your retirement expenses. One of the most popular ways is to get rid of cable and cancel your landline phone service.
I have to admit we still have a landline phone, and it costs $30 a month or $360 a year. When we retire and start living on a fixed income, it will be a lot of money to pay for something we do not use often anymore.
I know that we should cancel our landline and use only cell phones. In the modern era of texting, Facebook messaging, and emails, people do not call each other as they used to do.
We have cable TV, and our last year bill was topping at $75 a month or $900 a year. I struggled with the question: “Should I get rid of cable?”
Honestly, we do not watch hundreds of channels on TV, and I do not like to be interrupted with commercials every 10 minutes. Internet streaming service like Netflix and Amazon Prime costs much less and offers more entertainment.
So far, we did not get rid of cable but changed from Verizon Fios TV 300+ channels to Verizon Fios TV plan with fewer channels for a price of $55 a month or $660 a year.
If you plan to live on less money in retirement, you should not overpay for things you do not use often.
9. Find free activities or use senior discounts.
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.
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.
Using senior discounts is another way to live on less money and still enjoy your retirement. You can ask for a senior discount at many places:
- gym membership
- local museums and concerts
- state parks and beaches
- golf courses
- local stores and supermarkets
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Article from AARP: 10 Places to Ask for Senior Discounts
10. Find travel deals and travel off-season.
Traveling is the number one goal on the retirement bucket list for many baby boomers. But traveling is expensive. It includes hotels, air tickets, restaurant meals, rental cars, entertainment, tours, and more. But If you want to travel on less money, and still fulfill your retirement dream, 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. Start with looking at cheap accommodations. Instead of paying for the hotels, look at websites like Airbnb, VRBO, or Vacation Rentals to see what they have to offer at your destination.
VRBO (Vacation rentals by owner)
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 price flights are the first flights in the morning. Fly on the cheapest days of the week – Tuesday, Wednesday, and Saturday.
Look for senior discounts to 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 concern 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.
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11. Cook at home and cut down on eating out.
Eating out often might be expensive when you start living on a fixed retirement budget. One of the ways to save money is to cook more meals at home.
I like to cook, but I can see how it might be boring to eat at home all the time when you are retired. You easily get caught in a routine of the same dishes – pasta and meatballs, fish and rice, or chicken noodle soup.
To save money and still have fun, plan on eating out at lunch rather than at dinner. Many restaurants have a cheaper lunch menu. Instead of eating out once a week, start eating out only once a month.
If you want to dine out in an expensive restaurant, avoid ordering appetizers, alcohol, and dessert to save money on the highest price increase items.
To cut your spending on dining out, take advantage of deals and discounts. If you receive a 10 percent senior discount on a $120 meal, it will reduce your annual cost of dining from $1,440 to $1,296. So, you can keep $144 in your pocket and still have fun eating out on a reduced bill.
Ask about senior discounts before ordering the meal. Special savings like senior discounts are not always advertised or offered by the restaurant employees because of age sensitivity.
To save more money sign up for Groupon to receive coupons or discounts. And check out the AARP website for restaurant discount deals.
Article: AARP Restaurant Dining Discounts.
Also, consider a rewards credit card for your everyday spending – like getting cash back. If you do not have any debt, you could easily use a credit card to earn cashback on your groceries and even travels.
The key to making the most out of credit card options available today is using them for purchases you can afford to pay off and paying your bill in full every month.
Best Cash Back Credit Cards of 2020
12. Stay healthy and fit.
To keep your medical expenses down, stay healthy and fit. The cost of healthcare is rising every year. So, it is important to stay healthy in retirement. 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 a local park or greenway path.
Leave the car at home and walk or bike to the local store, bank, or post office. Gardening or decluttering are easy ways to keep you active and fit.
Follow a healthy 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.
13. Keep track of retirement expenses.
It is important to stick with your budget and keep track of your retirement expenses. You may need to adjust your spending habits and make it fit within your budget.
Always remember how hard it was to save for retirement. Do not fall into the consumption trap and find new ways to spend less on your purchases.
For example, try to limit spending at your favorite stores by setting up a fixed amount or just bring cash. If you do not have enough cash to pay for your purchase, do not allow yourself to pay for it with a credit card.
Another way to control impulse spending is to shop online. Compare prices, read reviews, and do not buy more stuff just because it seems cheaper. Setting up a budget for different occasions like a holiday budget or a vacation budget will help to keep track of your expenses.
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14. Pay off debt before you retire.
If you want to live well on less in retirement, consider paying off any high-interest debt such as a credit card before you stop working.
It can be difficult to pay off debt while living on a fixed retirement income. These monthly payments may become one of your largest retirement expenses. Getting rid of debt before retirement will help you to live with less stress and fewer liabilities.
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15. Set up systematic withdrawals from retirement funds.
Once you leave the 9-to-5 world, do not give yourself limitless access to your retirement funds. You do not want to go through them fast.
To avoid unlimited spending, you should use the ‘4 percent withdrawal rule’ for systematic withdrawals from your retirement funds. You can call it ‘my retirement paycheck’.
Set it up as a direct deposit coming from your retirement savings – 401(k), IRA, Roth IRA – into your checking account once a month. This process will help to control your spending. Otherwise, you might start treating your retirement funds as a big pot of cash.
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Have you saved enough money for retirement? Do you know for how long will your money last? Have you thought about retiring on less money and the ways to do it? Share your thoughts in the comments below.