Many retirees are finding their golden years tarnished by low returns on investments and smaller nest eggs than they’d hoped. Meanwhile, longer life spans, increased expenses —particularly rising health care costs — plus a volatile stock market and low interest rates on savings havebaby boomers facing tough choices.
While seniors don’t necessarily have to give up trips to see the grandkids or spend afternoons clipping coupons before heading off to an early-bird special, eliminating some unnecessary expenses and keeping an eye out for ways to save can help keep precious dollars at home.
Not Your Parents’ Retirement
“This is the first generation that is experiencing multi-decade retirements, and this is happening in a world where the burden for retirement planning has shifted from corporate big brother and traditional defined benefit pension plans to each of us individually with a three-legged stool of Social Security, employer based/IRA type retirement savings and personal taxable savings,” said Manisha Thakor, CEO and founder of MoneyZen Wealth Management.
"That's a huge shift. It means you have to figure out how to make your retirement funds last much longer than previous generations, in the absence of fixed monthly pension to help define your budget for you," she said.
According to a new study from Fidelity Investments, the typical U.S. worker would faceas much as a $2,100-a-month shortfall during retirement if current trends continue.
So just how will retirees bridge the gap?
While there are well-established guidelines when it comes to spending retirement funds, far fewer parameters apply when it comes to creating a budget and evaluating expenses.
“When it comes to budgeting in retirement, the chicken and egg debate is how much weight to give to fixed costs versus discretionary costs." Thakor said. "Or said slightly differently, do you focus on the lake house — big things — or the lattes — little things?”
Move or Downsize?
Many seniors look to their largest asset, their home, as a starting point for bringing in some much-needed cash while simultaneously cutting expenses.
“If you are not using every room in your house every day, there's a good chance you may have more home than you need,” said Thakor. “Obviously this isn't a great market to be selling into, but the key is really thinking about whether you are using all that space you are paying for.”
Thakor also suggests homeowners ask themselves how much time and money is being spent on home maintenance versus leisure and recreation.
“When your abode becomes an upkeep burden, which often can be the case with those alluring second homes, it's time to reassess,” shesaid.
Selling the family home and purchasing or renting a smaller dwelling usually means lower utility bills, taxes and property insurance. Plus, any equity made from the sale can be reinvested or used to replace lost income to help offset expenses.
Moving to a less expensive area is another way to get a bigger bang for your buck. Thakor says those who live on the East and West coasts are often stunned by how much you can get for your dollar in middle America.
“That's magnified in certain states with more favorable income-tax structures,” she pointed out. “The flip side is that there can also be a great deal of enjoyment that comes from having deep roots and a history in the place you are currently living.”
Thakor says while there isn’t a one-size-fits-all solution, the key is figure out why you are living where you are.
Small Changes, Big Savings
New York retiree Georgeanne White, 67, said living on a fixed income and watching her life savings earn next to nothing at the bank was difficult, but after her husband passed away two years ago, her budget became even tighter.
“Losing one social security and one pension — that’s what’s really hard,” White said.
Not wanting to leave her home of four decades — just blocks from her grandchildren — White made some simple changes that, when added up, are saving her thousands per year.
She began by looking at her expenses to see where cuts could be made.
“We were paying $464 a month to Con Edison because my husband had us on a plan where we paid the same rate every month and sometimes at the end of the year, we’d get some money off the next bill, but I wanted to know exactly how much I was using every month,” White said. She changed her plan to having her meter read monthly; after lowering her thermostat, she saw her bill drop $100 immediately.
Anything else you can give up?
White says she’s given her central air conditioning the summer off and keeps lights off and most appliances unplugged when she isn’t using them.
“If it’s really humid and unbearable, I’ll turn on a window unit and that way I’m cooling one room instead of the whole house. My bill now averages $132 a month; that’s a big difference,” she said.
Need That Second Car?
Seniors still making a car payment may want to consider trading down to something they can purchase outright or switch to something that gets better mileage.
For those with access to public transportation, ditching the car completely means savings on gas but also auto insurance.
Minimize Medical Expenses
According to Fidelity's latest retiree health care costs, a 65-year-old couple retiring this year is estimated to need $240,000 to cover medical expenses throughout retirement. That represents a 4 percent increase from 2011.
Prescription drug costs account for a larger percentage of that figure each year, according to Chris McDermott, financial planner with Fidelity Investments.
To save some cash, many retirees are bypassing the corner drug store and turning to generic mail order prescription refills.
The average person can save 50 percent to 90 percent on generics with mail order pricing for a Medicare Part D plan (stand-alone or Medicare Advantage), according to Heather Woody, consumer specialist withPlanPrescriber.
For example, someone living in Lafayette, Calif., with no mail order co-pay and Medicare Part D covering the deductible can save $63 on a 90-day supply of Atorvastatin, the generic form of Lipitor, versus filling the prescription at a pharmacy during the Medicare Part D initial coverage period.
Also, staying healthy can go a long way toward keeping costly drugs and doctor visits at bay. Many free preventive healthcare services are available to health-plan members. Seniors with Medicare can receive an annual flu shot as well as ones to protect against hepatitis B and pneumonia.
Health screenings, including tests to detect colon, breast and prostate cancer, are also offered at no cost. However, should a screening result in treatment, seniors will incur a cost for that portion of care.
Lifestyle for Less
Carolyn Emler of Fairfield County, Conn., enjoys dining out but also finds herself with less pocket money than she’d hoped to have during her retirement. Instead of putting herself on a no-restaurant diet, she now goes out for lunch instead. With portions a bit smaller, it’s easier on both your waistline and your wallet, Emler said.
When vacationing, skip the weekend stay. Consider traveling mid-week, when rates are typically lower. Don’t forget to mention the AARP membership for additional discounts.
Lower the Cable Bill
Research firm Centris found that cable subscribers paid an average of $69.70 per month in 2011, which is less than the average $76.80 for satellite and $99.67 for fiber-optic. AARP recommends looking up free movie screenings by visiting sites like Gofobo, Film Metro and Wild About Movies. Local libraries also tend to have free screenings.
Unspoil the Kids
White, a mother of three and grandmother of five, said she has scaled back on gift-giving.
“Now I just give to the grandchildren,” she said. “I cut down from $100 to $50 per child. They have to understand; things are different when circumstances change.”
Instead, White gives the gift of her time by babysitting frequently and picking up the mail and watering plants while family members are vacationing.
The old adage “a penny saved is a penny earned” resonates with retirees looking to maximize every dollar. Making some conscious choices to limit expenses can go a long way toward easing the financial strains of retiring in today’s economy.