How to Cut Costs in Retirement

Finding success in retirement is a matter of trade-offs. Some pre-retirees will say that they'd like to have every bit as much, if not more, money in retirement as they had while they were working, even if it means they have to work longer or economize more in advance. Ticking off items on their bucket lists is a key goal, and hiking in the Himalayas and playing golf at Pebble Peach don't come cheaply.

Other pre-retirees are comfortable with a different type of trade-off. They, too, would like a good quality of life in retirement, but don't mind economizing a bit in their later years, especially if it means they can be retired longer. They consider time to be the true luxury that accompanies retirement. To get there, they're willing to downsize their homes, hang on to their cars long enough to earn plaudits from tightwad pals, and entertain at home rather than enjoying lavish meals out.

Many others will balance the above two styles, economizing on some items but considering other splurges sacrosanct. I've known plenty of retirees who weren't wealthy but still managed to travel to fascinating places and contribute to charitable organizations that mirrored their values. They made room in their budgets for these priorities by saving on other line items.

If you're nearing retirement and you don't have as much saved as you had hoped, working longer, taking Social Security later, and continuing to sock money away are key ways to help bridge the shortfall. But you might also take heart in knowing that your successful retirement will depend on identifying your own trade-offs--areas where you're able to trim costs in exchange for what you really want, which might be the ability to retire sooner.

Here are some of the key ways in which retirees might be able to cut their costs.

Make Changes on the Home Front
Moving is a pain in the neck, but one of the easiest ways to make retirement more affordable is to consider moving to a less-expensive residence, usually someplace smaller. If you own your home, you might be able to reduce your mortgage amount or unlock equity by downsizing to a smaller place; you're also likely to cut your property taxes, maintenance costs, and utility bills. You may even cut your health-care costs, as Morningstar contributor Mark Miller discussed in this recent analysis. Of course, downsizing carries its own trade-offs; Morningstar.com users discussed them in this Discuss forum thread, and I summarized their comments in this article. Several cited the ability to shed unnecessary objects as one of the key side benefits of downsizing, though many also noted that they didn't plan to downsize because they had never "upsized" in the first place.

In a related vein, some retirees and pre-retirees in the same Discuss forum thread noted that relocating to cheaper geographic locales had helped them dramatically reduce their in-retirement cost loads (and escape brutal Northern winters). Not only do housing costs vary significantly by geography, but so do tax burdens. This handy map provides an overview of the tax rates in each state, including the skinny on property, income, and sales taxes. For adventurous pre-retirees who would like to economize, moving to a foreign country with low costs may be an option; this article provides an overview of some of the trade-offs that accompany retirement overseas.

Trim Day-to-Day Expenses
Making changes to your housing situation is one of the biggest-ticket ways to cut your in-retirement costs, but it's also the one that will require the most dramatic lifestyle adjustment. For those who aren't prepared to take that plunge, there are a host of simple ways to reduce expenses on everything from food to utilities to personal care--small changes that will add up over time. This article details some of the easiest tweaks you can make to reduce your day-to-day outlay, and users also offered terrific tips of their own in the Comments field below the article.

Slice Travel and Leisure Costs
Retirees have something working folks don't have, and they have it in abundance: time. But many retirees will also tell you that having more time gives them more opportunities to bust their budgets by overspending. Online alerts and daily deal sites make it particularly easy to save on everything from meals to vacations to skydiving, but there are oldfangled ways to economize on travel and leisure costs, too. This article amalgamates money-saving tips on everything from cultural and sporting events to travel, entertaining, and dining out.

Watch Your Investment and Other Financial Costs Like a Hawk
The aforementioned tips all relate to lifestyle changes. But if you want to cut your in-retirement expenses without having to change your living habits one little bit, the easiest way to do so is to reduce how much you're paying your financial institutions. Consumers don't typically write checks for most of these services; instead, their share of expenses is automatically deducted from their balances. That might be convenient, but the end result is that they're usually not particularly sensitive to what they're spending, even though financial-services costs can easily be one of the biggest line items in many retiree households. To boot, higher investment costs are inversely related to investment performance, making mutual funds and exchange-traded funds some of the rare consumer products where paying up doesn't typically buy you a better product. This article provides 50 tips for cutting your investment, insurance, and banking costs.

A version of this article appeared Sept. 12, 2012.

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