Living on a fixed income poses a significant challenge for many retirees. Unless you’re willing to work part-time in retirement, once you leave your career behind, your options for generating extra cash will be limited at best. That’s why it’s vital to stretch your existing budget to the greatest extent possible. Here are a few ways to reduce your expenses in a big way.
DOWNSIZE YOUR HOME
That large house and yard undoubtedly served you well when you had kids living under your roof, but if you’re an empty-nester with more space than you know what to do with, it may be time to consider downsizing.The average homeowner spends 1% to 4% of his or her home’s market value on annual maintenance and repairs, but if you trade in your current home for a smaller one, you might slash your expenses in half. After all, it’s cheaper to heat and cool a living space that is half the size of your current home, and maintaining a modest backyard is far easier than mowing and trimming a much larger property. Remember, while you may be used to tackling home maintenance yourself, thus keeping your costs to a minimum, as you age, your ability to do so might decline. Additionally, as homes age, they tend to require additional maintenance, thus adding to your overall expense. If you move to a smaller space and manage to find one better in better condition, you might save yourself a pretty penny year after year.
GIVE UP A VEHICLE
If you live deep in suburbia, going without a car probably isn’t an option. But if you reside in a city, or live with a partner who also has a vehicle, getting rid of one car could make a major difference in your finances.AAA reports that it costs about $8,700 a year to own a vehicle, but even if your car is fully paid off, you’ll still have insurance, maintenance, and repairs to deal with. If you have other options for getting around, unloading a vehicle could help you save money each month.
ENROLL IN MEDICARE ON TIME
Though coverage under Medicare begins at age 65, your initial enrollment window opens three months before the month of your 65th birthday and ends three months after the month you turn 65. But if you fail to sign up during that seven-month window, you could end up paying more than you need to for Medicare Part B, which covers doctor visits and diagnostic services. Signing up late for Medicare Part D, which covers prescription drugs, can also cost you.
SHOP YOUR LIFE INSURANCE
Your needs for life insurance change when you’re over 50. Life insurance over 50 tends to be more focused on leaving a legacy or taking care of final expenses rather than taking care of dependents or paying off the mortgage. Chances are you no longer need the policy you have on hand and can save yourself some money by downgrading to a smaller face amount. Speak to your agent and do some shopping to see if there is room for you to save.
DINE AT HOME
Tempting as it may be to take advantage of those early-bird specials, if you’re looking to save money in retirement, dining at home is an effective way to do it. The typical restaurant charges an excessive markup for the food it serves, which means a $15 entree can usually be prepared for a mere $5 at home. While dining out on occasion can be a worthwhile treat, the more you cook at home, the less you’ll spend on food overall.
LOWER YOUR TAX BILL
When we think about living expenses, we tend to consider everyday necessities like groceries, electricity, and clothing. But taxes can be a significant expense for seniors as well. Thankfully, there are a number of tax advantages available that can result in some serious potential savings. If you’re still working, contributing to a Roth IRA is one way to lower your taxes once you are in retirement. That’s because Roth IRA withdrawals aren’t subject to taxes, nor are you required to take them at any given point in time. Another option for lowering your taxes is taking advantage of the medical expense deduction. Currently, you can deduct out-of-pocket medical costs that exceed 10% of your adjusted gross income (AGI). This means that if you spend $10,000 a year on healthcare and have an AGI of $60,000, you can deduct any amount above $6,000 — which, in this case, is $4,000. Since medical care is the one expense that tends to universally go up among seniors, it pays to track your spending and keep impeccable records so that you know what sort of deduction to claim.
Client Focused Advisors does not provide tax advice as part of it’s services. Please consult with your own tax advisors for such guidance.