Many Americans intend to keep working after they have retired. This is because more people are retiring with less savings than they need to be comfortable.
According to data from Northwestern Mutual, 21% of Americans have no retirement savings at all. According to Bankrate, 56% of Americans feel they are off track when it comes to their retirement savings.
This means more than half of American retirees may not be able to take care of themselves during retirement.
Given that the life expectancy of the average American is 79.5 years, this implies that many retirees will live for another decade (depending on their retirement fund) without any source of income.
As such, you need to make sure that you’ve built a sizeable nest that will cater to your needs when you’re no longer eligible for the labor market.
One way of making sure you have sufficient funds for retirement is to identify unnecessary expenses that could take a chunk out of your savings.
In this article, we look at ways you can save money in retirement.
7 Expenses You Can Cut Back on to Save Money in Retirement
1. Travel/vacation
Many people dream of seeing the world once they are retired, wishing to catch up on the pleasures they missed while working a 9 to 5.
However, taking trips abroad can also be an expensive venture if not carefully planned. One option is limiting the number of trips you embark on.
You could also take advantage of the strong dollar and travel to locations that are less pricey than popular destinations like Paris, Rome, or Hawaii.
You can opt for vacation spots in Mexico or the Caribbean. Head to Belgium and take a day trip or two to Paris instead of spending the whole trip there.
Also, while on vacation, it’s best that you live like a local if you intend to save some money.
When you travel, choose locations based on cost-efficiency.
Another way to save money on travel is living like a local. Rather than eating only at fancy restaurants or booking expensive hotels, you can live in a modest apartment and frequent the same restaurants that locals do.
Also, if you want to travel, try scheduling your trips during off-peak periods is a way to save on your travel costs.
8 Smart Ways to Save Money on Vacation
2. A second car
Working couples sometimes require two vehicles get to and from their workplaces.
However, if you and your spouse can organize your schedules, there may not be a need to have two cars sitting in the driveway.
First off, having one car saves money on gas which keeps getting pricier. It also costs less in terms of insurance and maintenance.
If you’re not utilizing the second car, you’re better off selling one and adding the proceeds to your retirement nest.
Can You Go Car Free? 6 Practical Financial Benefits
3. Eating out
Eating out also offers certain benefits when you’re retired.
It’s more convenient, plus it is an avenue for networking with other people. However, in the long term, the benefits of cooking outweigh the convenience that comes with eating out.
Cooking at home allows you to learn new things and stay occupied during your retirement.
It can also be a source of self-fulfillment knowing that you can do something with your own hands.
Plus, it’s much easier to keep track of your diet and stay healthier when you cook at home. Most of all, it is cheaper in the long run which is beneficial for those that want to save money in retirement.
4. Debt
Retiring with debt is a huge financial mistake.
Every dollar you owe sets you up for a less blissful retirement. Liabilities such as credit card debt, mortgage, and student loans take huge drawdowns on your retirement fund.
The number of workers age 75 and older is expected to increase in the US by 96.5%, according to a 2021 survey from the Bureau of Labor Statistics.
By 2040, the US population of adults ages 65 and older is expected to increase to 80.8 million from 54.1 million in 2019.
With the cost of living continually going up, thus making it more difficult for people to retire, eliminating your debt burden before retirement is one of the best things you can do.
While you’re still working, you should prioritize debt reduction before retirement savings. Pay off your high-interest loans first, but don’t leave the low-interest loans running into your retirement.
If you’re on a mortgage, try and finish the payments and own a house. Who knows? You may need to take out a loan against your house while you’re retired.
5. Health care
Health care expenses can take a huge chunk out of your nest egg.
In a recent Nationwide Retirement Institute survey, 59% of people surveyed stated they lacked confidence that they’ll be able to pay their health care costs as they age.
While it’s difficult to estimate your health costs, you can start by making sure you’re living a healthy lifestyle. Do away with habits that have negative effects on your health in the long term.
If you can’t, the alternative is building emergency savings for your health care. You can invest this amount in low-risk assets like mutual funds or bonds so that your money accrues interest over time.
6. Investment fees
Having your portfolio managed by a professional can incur costs like management fees and commissions.
Given that you have more than a decade to live after you are retired, investment costs could be a drag on your portfolio if left unattended.
As such, it’s worthwhile to review your portfolio to reduce your investment costs. You can do this by taking note of the expense ratio of each fund and challenging yourself to find a lower-cost fund that meets your investment needs.
Also, take time to learn ways you can withdraw from your retirement account without attracting penalties of taxes.
7. Taxes
For those 65 and older, there are tax incentives that include a higher standard deduction. Additionally, there are tax benefits for senior homeowners in several areas.
Plan your retirement account withdrawals wisely to further lower your tax burden. More money in a 401(k) can be deferred from income tax payments by retirees who are still employed than by younger workers.
Retirees who have a heart for charity can make qualifying charitable gifts to avoid paying income tax on their IRA-required minimum distributions.
To Save Money in Retirement, Get Started Early
Cutting expenses during retirement starts before you are retired.
Reducing /eliminating your debt burden, building a health emergency fund, or reducing your traveling gives some wiggle room to save more money for your retirement.
It also takes some form of adjustment. Since you won’t be working, it’s a good idea to adjust your lifestyle to suit your condition. This can be challenging considering that you have already established a pattern while working.
The key is being mentally prepared for the inevitable life-changing process that comes with retiring.
Editor’s note: This article was originally published Aug 6, 2022 and has been updated to improve reader experience.
Really good information before you are retired. Thanks and OK.