5 ways for retirees to slash their expenses
When you're retired and counting on your investments to provide you with income, it's scary to watch your investment balance go down -- especially if it's falling too fast because you're spending too much cash. If you're worried about making your money last during retirement, it may be time to make some drastic lifestyle changes before it is too late. The sooner you act to cut your spending, the more financially secure you'll be since you can leave more of your investment money alone to grow and provide for you later.
Fortunately, there are some big moves that you can make that will dramatically reduce the amount of cash you need to live on. Consider trying one or more of these options to slash your living expenses and protect your future.
1. Move to a lower cost of living area
One of the single best ways to make your retirement savings last longer is to lower your cost of living. Some places in the U.S. are simply much less expensive to live than others. If you're spending $50,000 a year to live in Orange County, California, for example, you could get by on less than $32,000 with a move to Phoenix, and get a nicer house for a lot less since housing is 63% cheaper.
If you have $300,000 in retirement savings (far more than most Americans do), an average Social Security benefit of $1,360 per month, and you're spending $50,000 annually (or $4,166 per month), your retirement savings would need to generate $2,806 per month in income -- which would mean your $300,000 nest egg would last just 12 years, assuming your investments earned around a 7% annual return.
But, if you dropped your spending to $32,000 by moving to a lower cost of living area, you'd only need your savings to generate around $1,360 monthly. Your savings would last more than 30 years, so you could comfortably make it through your retirement without running out of cash.
Unless you already live in a low cost of living area, it's definitely worth looking into making a move -- perhaps to one of these top cities for retirees -- so your money will last far longer.
2. Get rid of one (or both) of your vehicles
Owning a car is expensive. Between insurance, maintenance and repairs, license and registration costs, gas and other incidental expenditures, each car you own costs you around $8,469 per year. And the AAA study used to determine these costs didn't count your car payment, although it did factor in interest on an auto loan. If you've borrowed to buy a new vehicle and you're paying the average monthly payment of $509, your total costs of car ownership likely top $10,000 annually.
Your car alone could eat up almost your entire Social Security benefit. If you have the option to share a car with your spouse now that you're not both working, leaving this extra $10,000 invested could make your retirement savings last decades longer. Even better, if you're relocating to a low cost of living area, look for a place where you wouldn't typically need a car. You could potentially get rid of both vehicles and just use a ride sharing service like Uber, or get a rental car on the rare occasions when you actually need a vehicle.
RELATED: These states have the oldest retirement ages:
3. Downsize your house
A 2014 report from the Consumer Financial Protection Bureau revealed 30% of homeowners aged 65 and older had mortgage debt in 2011, while 21.2% of homeowners aged 75 and up were still paying back their home loans to lenders. The median mortgage debt for seniors has also increased by 82%, reaching $79,000 in 2011.
If you can sell the costly home you still owe money on, use the equity to pay cash for a new home, and eliminate your monthly payment, you'll have a lot of extra cash in your pocket. Buying a new home can also give you the opportunity to relocate to that walkable, low cost of living community if you really want to maximize your savings.
4. Cut off your kids
Another possible benefit of downsizing your home: You won't have room for your kids to live in your guest room. For far too many parents, providing room and board -- along with offering other financial help to kids -- is destroying their retirement security. Almost half of all millennials are still getting financial support from mom and dad, but making these contributions can strain a retirement budget that is already too small.
While it may sound too harsh, your kids have lots of time to build their financial future, while you won't be able to recover if you draw down your retirement accounts too quickly. The "bank of Mom and Dad" needs to close, lest you put your entire family's financial stability at risk. Your kids definitely won't be better off if you run out of money and they don't yet know how to be self-sufficient, so set a deadline (ASAP), and let your children know financial support will come to an end.
5. Claim all of your discounts
Seniors and retirees are eligible for a bigger standard deduction and may also have access to tax breaks for things like qualifying health expenses, investment expenses, and Medicare premiums. Take advantage of any tax breaks the government gives you to reduce the amount of your money going to the IRS.
You should also make it a habit to ask for senior discounts and try to benefit from the flexibility your schedule allows by traveling when prices are lowest. The more you cut spending by using discounts that don't affect your quality of life, the better off you'll be.
By making your money stretch farther and finding ways to spend less of it on housing and expenses for your kids, you should be able to ensure the money in your retirement savings lasts as long as you need it to.