How do you know if you’re saving enough for retirement? To begin to answer that question, run a basic retirement calculator at least once a year. Even better, consider obtaining more customized answers from a financial advisor. A financial professional will consider your unique goals and help you develop an individualized plan.
If you discover that you’re not keeping pace to achieve your retirement goals, you still have plenty of options. Obviously, you can try to save more money, change your expectations, delay retirement, or plan to perform part-time or consulting work after you leave your career. But before setting a new course, see if you can find ways to reduce your current expenses so you have the chance to invest even more money into your future retirement lifestyle.
Tips to Reduce Expenses and Maintain High Retirement Goals and Expectations
Explore the extra savings and additional benefits that you can enjoy by reducing the kinds of expenses that typically make it difficult for retirees to realize their retirement goals:
- Cut Unsecured Debt
Unsecured debt causes two problems. First, you’ll probably find that high-interest rates drastically increase your monthly expenses without offering any benefits in return. If possible, you should reserve credit cards for emergencies and plan to pay them off by the time you retire. By reducing the ratio of your available balance vs. your debt balance, you have a good chance to improve your credit score, and high credit scores can lead to better deals on housing, insurance, and many other things.
You should also evaluate the steps you consider to help your children with their college costs. If possible, avoid taking out new loans for them unless your retirement plans are on track. Hopefully, your kids will have a long career that they can enjoy to help tackle any debt they may have to accept. If you do need to take out a parent loan, try to pay it off well before you plan to retire.
- Lower Housing Costs
You might find it surprising that the average American’s household income before taxes is about $75,000 and that the average household spends most of their income each year, according to a report by USA Today. While you may trim some smaller expenses, most people spend more on housing each month than upon any other expense. If you can’t free yourself from your mortgage by the time you retire, you may want to consider downsizing into an apartment or cheaper house.
If you do plan to keep your current home, go ahead and proactively tackle such large, anticipated expenses as roof repairs while you still earn income and have time to adjust your spending in other ways. Even if you decide to sell your home later, necessary maintenance will help maintain your home’s value and make it more marketable. At the same time, you might reconsider taking on large remodeling projects for cosmetic reasons because some of these won’t offer you a good value if you end up selling.
- Preserve Your Most Important Asset — Your Health
Most of you probably already know that healthcare costs are high and rising each year. Your good health can help you save money, enjoy more options, and of course, greatly improve your retirement lifestyle. Certainly, most people don’t choose to get sick and may have inherited a tendency to suffer from certain diseases. At the same time, lifestyle choices matter.
Part of your retirement plans may consist of reducing unhealthy habits and learning to enjoy healthier ones. A better diet, regular activity, and periodic checkups are the kinds of investments that you can make in yourself produce great returns – both in terms of lifestyle and in impact to your budget.
- Reduce Transportation Costs
Do you and your spouse both really need to spend thousands of dollars each year to own, insure, and maintain cars? One or even both of you might explore such options as carpooling, taking alternative transportation, or simply buying vehicles that cost less to own.
AAA found that the average American spends over $8,000 on each car annually. That amount of money can probably buy you quite a few bus passes or car-sharing rides, and you might even rent a car occasionally if you need one. You should still have some extra money left over to help fund your retirement dreams. Also, if you can walk or ride your bike sometimes, you can benefit from the extra exercise!
- Evaluate Your Insurance Costs
Some insurance expenses may inevitably increase as you get older. You may consider long-term care insurance, different kinds of life insurance, and of course, health insurance. However, in many cases, you may reduce or eliminate your life insurance needs as your income decreases and your children become independent.
You can also reduce certain insurance expenses to help balance out the increased costs of other types of policies. For instance, you could sell your second car, so you won’t have to insure or maintain it. Also, downsizing to a smaller home or an apartment will further reduce your insurance coverage needs.
- Should You Downsize Your Home?
A recent TD Ameritrade study found that almost half of all Americans already entertained plans to downsize their homes before they retired. These people looked forward to reducing homeowners insurance, maintenance, property taxes, and other expenses and responsibilities.
In certain cases, a home sale may have tax implications. You should plan ahead for retirement by discussing your ideas about downsizing with a financial professional. He or she might encourage your ideas or provide other suggestions for reducing the cost of homeownership.
- Stop Paying Full Price
You probably already know about AARP and many other organizations and businesses that can help older folks get discounted products and services. Some stores even offer discounts for groceries, bus passes, meals, and entertainment if you’re over 55, 60, or 65 – and it never hurts to ask!
Also, you can plan to use some of your leisure time becoming a more conscientious shopper. You should have more time to look for sales, take advantage of off-peak discounts, and so on. Up to 50% of travel expenses can be cut simply by avoiding the high priced (and overcrowded) tourist seasons.
How to Plan to Retire Well
You might hear a rare story about somebody who retired well because of a lucky twist of fate. But in almost all cases, you have to rely upon a good retirement plan that includes reasonable goals, setting a budget long before retirement, and the ability to remain flexible. One way you can adjust is to find ways to reduce your expenses, both before and after you retire.
If you’re ahead, behind, or haven’t even thought about your retirement plan, we want to help you. The earlier you call upon us for help setting goals and defining a pre- and post-retirement budget, the easier time you will have. Get started today by sending us an email to tell us about yourself, and we’ll show you exactly how we’ve helped similar people achieve their retirement goals.
The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.