Preparing for retirement starts in your 20's by enrolling in a company sponsored savings plan or investing in a retirement savings account and continues throughout your working years. With proper sacrifice and planning, and maybe a little luck, you will be fortunate to have saved enough to fund a portion of your retirement needs. Retirement planning does not end when you stop working, in fact it requires additional steps to insure your money lasts. Here are some tips to help stretch your retirement income:
Develop Skills for Part-time Employment in Retirement
One of the best ways to stretch retirement income is to bring in additional income, especially during early retirement years. Many retirees turn hobbies into part-time income and what better way to keep busy during retirement then earn some extra income doing something that you have a passion for? If you are already retired, you can earn up to $14,160 annually before triggering any reduction in social security benefits.
Practice Living on 70-80% of Your Take-Home Income
Not sure you have the funds necessary to live comfortably in retirement? One rule of thumb is that you can expect retirement expenses to be roughly 80% of your pre-retirement expenses. There is even new research suggesting that for many Americans, 70% may be enough to fund your retirement. In any case, the first step is to create a budget projecting what you believe your expenses will be post-retirement and follow it for at least 3 months. If you can easily live on 80% of your pre-retirement income why not try 70%? By living on less you are preparing for an unexpected drop in the stock market that can have a major impact on retirement funds or an illness that can exhaust financial resources rather quickly. Remember that certain expenses will change during retirement so it is important to make a realistic budget. According to research from the annual U.S. Bureau of Labor Statistics Consumer Expenditure Survey, the Health Care Cost Institute, and from the biennial Health and Retirement Study survey conducted by the Survey Research Center at the University of Michigan you can expect the following changes to expenses in retirement:
- If you plan on retiring at age 65 you will spend an average of $146,400 out of pocket on medical expenses not covered by Medicare. This assumes a life expectancy of 85 and does not include long-term care expense.
- For the average retiree, spending drops 14% immediately upon retiring and is due mostly to a reduction in work related expenses such as food, clothing, and transportation.
- Health Care Costs are projected to continue rising at an annual rate of 7-8% however, that cost is offset by a reduction in spending on other categories: Transportation -5%, Clothing -5.5% and Food -3%.
The above projections are for the average american in relatively good health. Chronic health conditions can drastically change the above scenario.
Downsize Your Life and Home
Downsizing your life can not only save you money on expenses but it can help to get rid of unnecessary clutter and stress. Canceling a magazine subscription or two, or selling that collection gathering dust in the attic can free up some extra cash and time you could be spending on a photography class or that Zumba Class you always wanted to do.
If the kids are grown and have settled into their own lives, now might be the right time to put the home up for sale and find a smaller place. Moving into a smaller single story home can cut housing and utility costs dramatically and provide a more comfortable retirement living arrangement. If you are fortunate to have the mortgage on your home paid off when you retire (a growing percentage of boomers are retiring with hefty mortgages), you might be able to avoid having a mortgage on the new property and have some cash remaining to add handicap accessible features, fund the grandchildren's college fund, or add to retirement savings. A smaller home typically means smaller utility bills and that means extra cash to help increase your retirement income.
Move to a Lower Cost of Living Area
If you are thinking about downsizing your home why not consider moving to a lower cost of living area? Moving to a lower cost of living area can cut living expense by up to 15% according to a recent survey on cost of living conducted by the Council for Community and Economic Research. You will need to figure in the cost of the move as well as any additional travel costs related to visiting the family before deciding if it makes sense to make the move.
Readers: Do you have a plan to manage expenses during retirement? Have you thought about events that might alter your plans!