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How to spend less in retirement

Key takeaways

  • It's possible to make small and large spending cutbacks in retirement that don't reduce your quality of life.
  • While many retirees enjoy saving, it can be important to look at whether you truly need to cut back, and your motivations for doing so.
  • A financial professional can help you find the right balance between reducing unnecessary expenses and spending on what brings you joy.

When Dick Schooler does the planting, fertilizing, and seeding in his Demarest, New Jersey, yard, he gets a double dose of satisfaction. The 86-year-old saves on landscaping costs while engaged in a hobby he thoroughly enjoys.

"I've always had a love of plants," he says. "I like to see things grow."

As someone who maxed out his retirement account contributions since he was a young man and made cost-conscious decisions in his working years, he's also enjoyed watching his account balances grow. And now, in his retirement, he still takes steps to save money, such as doing yard work and using the coupons that come weekly in his local paper.

Schooler has found ways to trim his expenses without cutting back on his quality of life. For retirees looking to do the same, there can be a wide array of potential sources of savings to consider—from big changes, like downsizing, to small changes, like making more use of their local library. And in fact, rather than bringing about stress, many cost-cutting actions can actually evoke good feelings.

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A financial professional can help you find your balance

Retirees save for a wide range of reasons. Some take pride in getting a deal, others want to put cash away for a big goal that arose after retirement planning, and some want to leave as much money as possible for heirs. There are also those who reduce expenses to hedge against inflation or a stock market downturn.

Yet, if you have a solid retirement plan—including enough guaranteed income to match your essential expenses—and you're still pinching every penny, take a step back to examine your real reasons for doing so. You may have unrealistic financial fears, or need assistance transitioning away from the "saving" and toward the "withdrawing" phase of your financial life.

If you have an inkling that you might be a bit too frugal or are continually urged by family or friends to enjoy your hard-earned money, it can be useful to work with a financial professional.

"Having them show you how much you can afford to spend and really stress test your situation can help bring you peace of mind," says Ryan Seward, a Fidelity branch leader in Dunwoody, Georgia. (Fidelity's retirement calculators and tools can also help you start to better understand your current situation.)

Small cutbacks can make a big difference

If you find that you do still want or need to reduce your spending, the good news is that even small reductions can have a big potential impact over the course of your retirement.

One way of understanding this impact is by looking at how adjusting your spending can impact the "probability of success" of your retirement plan—meaning, the likelihood that you won't run out of money during your retirement plan.

Here's how smaller savings, of just $2,000 per year, or larger cutbacks, of $6,000 per year, could impact those figures for a hypothetical 64-year-old preretiree.

Table shows hypothetical example of a 64-year-old retiree with $800,000 in savings and receiving $33,500 in Social Security. By reducing expenses from $72,000 per year to $66,000 per year, the retiree can increase their probability of success from 78% to 91%.

Hypothetical example demonstrates the estimated probabilities of success for a 64-year-old retiring at 65 and planning to 96, with $800,000 saved in retirement accounts and no additional savings, receiving $33,500 in Social Security benefits annually, and expecting to spend $72,000, $70,000, and $66,000 annually, respectively. The illustration uses a Monte Carlo simulation-based approach to estimate potential growth throughout the retirement plan, assuming an investment mix of 50% equities, 40% bonds, and 10% short-term investments. Simulations use historical market data to estimate a range of 250 potential outcomes for each asset class's returns, volatility, and correlation. Asset classes are represented by benchmark return data from Morningstar, Inc., not actual investments. Probability of success illustrates the likelihood that portfolio assets may prove sufficient to cover estimated expenses over the time period measured. It is derived by summing up all successful simulations, in which the hypothetical ending balance at 96 is greater than or equal to 0, and then dividing by a total of 250. The example does not factor in taxes or inflation. Past performance is no guarantee of future results. Hypothetical example is for illustrative purpose only.

Ways to save big

Once you feel comfortable with your reasoning, you can unleash a wide range of savings techniques. As you probably guessed, you'll need to make bigger changes for bigger savings. One simple way to potentially save thousands each year? Hold off on buying that new vehicle.

"Monthly car payments can easily get up into the $500 range or more, especially with interest rates these days," Seward says. "It's a lot of money."

Or, if it's no longer needed, selling a second car can potentially put some cash back in your pocket, while also helping you save on insurance and maintenance.

For many people, the single most impactful way to reduce their cost of living is by taking a hard look at where they live. To be sure, moving is a deeply personal decision and comes with plenty of tradeoffs—including the transaction costs of buying and selling, the stress of moving, and the disruptions from adjusting your routines. But downsizing or moving to a lower-cost area can potentially bring the double benefits of unlocking equity and reducing ongoing expenses.

"Selling the big family home where you have so many memories can be bittersweet," says Ann Dowd, CFP®, vice president at Fidelity. "But it can also open the door to new, exciting adventures—whether moving closer to your grandkids, trying out that cute seaside town you've aways loved, or just getting back all that time you used to spend on maintenance and yardwork." (Learn more about weighing the pros and cons of downsizing in retirement.)

Ways to save small

Once you've evaluated your potential sources of big savings, consider turning your attention to your day-to-day spending.

The first step is to find an approach that works for you. If you delight in finding the perfect outfit at a super-sale price, scour those clearance racks. If you relish the art of negotiation, feel free to do so in appropriate settings. And if the idea of paying $14 for a glass of wine makes you shudder, then put together a list of all the BYOB restaurants in your area.

Here are some more places to look for savings:

Scrutinize your subscriptions: Review your credit card bills to ensure you're not paying for unused services, says Fidelity's Seward. Be aware of subscriptions that renew automatically. Stay on top of those, as well as the end of free-trial periods, by setting a calendar reminder. Before re-upping for any subscription, weigh how much you spend against how much you actually use the service.

Reduce energy use: You can potentially save hundreds of dollars a year with little effort. Among the tactics to deploy: Install a programmable thermostat that adjusts temperatures automatically, switch to energy-saving LED lights, seal up window cracks with caulk, and strategically use blinds, drapes, and other window coverings. If you're considering more significant upgrades, look into any federal or state incentives for improving your home's energy efficiency.

Travel during off-peak times: As a retiree without a set work or school schedule, you can capitalize on the savings that come with taking a vacation during off-peak months. Another idea? Plan short trips, cultural events, and entertainment for midweek. Prices at hotels, as well as some restaurants, museums, and concert and theater venues, can be less than what you'd pay on the weekend. And always ask about discounts through any memberships or clubs you belong to.

Consider reshopping your insurance: Shop around for home, auto, and other insurance to get the best deal. Many insurance carriers provide discounts when you buy more than one policy, Seward says. Service providers may offer a better price if you call and say you're considering switching to a competitor.

Use a rewards credit card: From getting money back on purchases to earning travel points, rewards cards can provide a wide range of perks. Making savings even simpler, many financial institutions will automatically deposit cash rewards into a checking, savings, or brokerage account. As with any credit card, pay your balance in full each month to avoid interest charges.

Shop strategically: Avoid unnecessary purchases by creating, and sticking with, a shopping list. If you buy in bulk, portion out perishable food items like meat and freeze them before they spoil. And if you have a weakness for retail therapy, consider imposing a cool-off period on yourself to try to avoid impulse buys—like waiting a week before making an unplanned purchase.

Enjoy your money with confidence

While cutting costs can bring satisfaction, it's also important at times to let yourself spend. "Make sure that you allow yourself times and experiences when you don't stress over every penny and dollar," says Dowd. "You've worked hard to get to where you are."

The key, as with most things in life, is in finding the balance. Start by gaining a clear understanding of how much money you can comfortably spend. That's where a comprehensive financial plan and a well-thought-out budget come into play, says Seward. Creating a budget can help give you clear objective rules for your spending, so that you know if a given expense would put you over your limit. (Learn more about creating a budget in retirement.)

Then, before you swipe your credit card or pull out cash for a nonessential expense, consider the value you'll receive in exchange for your money. If you usually avoid pricey restaurants but a good friend invites you out somewhere nice for her birthday, you may decide that this time, the cost is worth it.

If you've budgeted properly, you can order that Cabernet Sauvignon and comfortably raise your glass in a toast to friendship.

Then, the next day, you can haggle with your cable company if it pleases you.

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