Save Money in Retirement

Jane Young, CFP, EA

Jane Young, CFP, EA

There are many ways to stretch your retirement dollars without dramatically impacting your lifestyle.  Start by evaluating what is of great importance to you.  Create a plan that encourages you to spend on things and experiences that are important to you and helps you reduce expenses in low priority areas.

Depending on your priorities, a decrease in housing expenses may provide tremendous cost savings.   If you live in a city with a high cost of living, consider relocating to a lower cost city – ideally one closer to family.  According to Forbes, some of the most affordable cities in 2014 include Knoxville, Birmingham, Tampa, Virginia Beach and Oklahoma City. 

Downsizing is another great way to reduce expenses.  Now that you’re retired, your housing needs have probably changed.  Downsizing can help you reduce expenses on mortgage, insurance, taxes, utilities and maintenance.  In addition to saving money, you may be ready for a different lifestyle, a new floor plan (living on one level) and a new neighborhood that better meets your needs throughout retirement.

In retirement there are opportunities to save on vehicle expenses.  Assuming you are no longer commuting to work every day, you should be able to save on gas and maintenance for your vehicle.   Additionally, many retired couples don’t need two vehicles, selling a second car can save on car payments, insurance, taxes and maintenance. 

Vehicles are a depreciating asset where you can lose thousands of dollars by simply driving a car off the lot. Save money by resisting the temptation to buy a new car.  Internet sites such as Edmunds.com and Kelley Bluebook (kbb.com) make it easy to research prices to negotiate a good deal on a used vehicle.   Additionally, where possible, buy your vehicles with cash and avoid high interest car loans.

In retirement, you have more time to focus on saving money. Use this time to shop and compare, watch for specials and utilize coupons.  Evaluate your home, auto and health insurance and compare prices and features provided by different companies.  Save on cell phones, internet and television by comparing service offerings and negotiating prices.  Consider doing chores around the house that you previously hired someone else to do and cook more to save on eating out.

Having more time can also result in saving on travel expenses.  A more flexible schedule, allows you to avoid peak season and get reduced rates on airfare, lodging and restaurants.  May and September are great months to travel and get some good deals.  You can also save by flying during the week.   Travel sites such as Tripadvisor.com, Cheaptickets.com, RickSteves.com and Vacation Rental by Owner (VRBO.com) can also help maximize your travel dollar.

Finally, avoid the temptation to over spend on children and grandchildren.  You will probably need most of your money to cover retirement spending needs.  Give your family the gift of your love and time rather than your money.

Financial Pitfalls to Avoid

Jane Young, CFP, EA

Jane Young, CFP, EA

Below are some common pitfalls that I have observed over the last seventeen years as a financial planner.  You may have a smoother journey toward reaching your financial goals if you can avoid some of the hazards along the way.

Living Beyond Your Means – Take the time to review your monthly expenses and compare them to your income.   Establish a budget where you spend less than you earn.  A good way to deal with unforeseen financial issues is to always save at least 10% of your income and avoid unnecessary debt.

No Emergency Fund – Everyone should maintain an emergency fund of at least three months of expenses.  This should be higher if you don’t have a lot of job security or your income fluctuates.  Without an emergency fund, large unexpected expenses can quickly throw you into a negative debt spiral.

Too Much Debt – Avoiding debt is a mindset.  There is good debt and bad debt – it may be wise to secure a low interest, tax deductible mortgage when purchasing a home.  This enables you to start building equity and reap the benefit of appreciation as the value of your home increases.  However, it is generally not advisable to finance personal items such as furniture and appliances.  If you can’t pay cash, you should probably wait and save up for the purchase.   Avoid credit cards if you can’t pay off the entire balance at the end of the month.  

Overspending on Vehicles – Financing the purchase of a new vehicle can negatively impact your monthly budget.  I have seen clients and friends take on car payments in excess of their home mortgage.  Vehicles are depreciating assets and they are not a good investment.  When possible you should buy a used vehicle and save your money to purchase your car with cash.  Unless you have a lot of disposable income, minimize your vehicle expenses and buy with functionality in mind.

Putting Kids Through College at the Expense of Retirement – I know you love your kids and you want to give them a good start in life but don’t sacrifice your retirement.  There are many ways to minimize college expenses and finance a college education.  You can’t take out a loan to finance your retirement.

Get Rich Schemes – I’ve heard them all – every few months someone will ask me about some new product or investment scheme that promises low risk, double digit returns.  There is no free lunch, if it sounds too good to be true, it is! 

Emotional Reaction to Movements in Market – Stocks are long term investments, you need to be willing and able to ride out the fluctuations in the market.   Over long periods of time, the stock market has trended upward; however, there will be periods with negative returns.  Avoid the natural tendency to react emotionally to market downturns.  Stay the course and follow your long term plan.

European Travel Can Be Affordable, With Some Planning

Jane Young, CFP, EA

Jane Young, CFP, EA

The cost of a European vacation may seem daunting. However, with some careful planning you can travel to Europe for little more than the cost of a domestic vacation. Two major factors in saving money on European travel are when and where to go. Several countries, such as Romania, Slovakia, Hungary, Portugal, Greece, Spain and Poland can be considerably less expensive than others. If you are trying to save money, avoid Norway, Sweden, Switzerland, Finland, Denmark and Luxemburg. Consider avoiding the big touristy cities such as London, Paris, Amsterdam, Geneva, Rome and Venice until you have more money to spend.
You can reap tremendous savings by avoiding travel during the peak summer season. Airfares and lodging prices are generally very expensive between mid-May and mid-September. You can find great deals on airfare and lodging between October and April. You can also save money by flying on a Tuesday or Wednesday.
Additionally, you can save money by flying across the Atlantic into less popular European cities. Once you arrive in Europe, you can take a train or a discount European airline to your target destination. It is also easier to use frequent flyer miles for flights to less popular destinations. Frequent flyer miles can be a great way to save money on air travel.
Once in Europe, it is inexpensive to get around using trains, buses, subways and discount airlines. If you have a long distance to travel, consider a sleeping train or a discount airline such as easyJet or RyanAir. You will be pleasantly surprised by how inexpensive airfare within Europe can be. A sleeper car enables you to cover large distances while you sleep and save the cost of a hotel for the night. There are places that you just can’t reach by train or bus. In this instance, rent a car for a day or two to visit these special out of the way places.
Save money on lodging by staying at an apartment, Bed and Breakfast or locally owned hotel. You can get better deals by staying in small towns or just outside the city center; this works well in cities with a good subway system. There are numerous resources on the internet to research and read reviews on lodging options. Some of my favorite on-line resources include TripAdvisor, VRBO (Vacation Rental by Owner), Fodor’s and Rick Steve’s.
Finally, don’t pay unnecessary fees to convert money or to pay for travel expenses. Many credit cards charge between 1-3% on European purchases. Use a credit card, such as Capital One, that doesn’t charge extra fees for European purchases. Generally, you can get the best exchange rate on local currency by using your ATM card at a major European bank. With ATMs, you are charged a fee every time you pull out money, so minimize your transactions. Avoid Change Bureaus; they usually have unfavorable exchange rates.

“What is Modern Retirement and Will You be Ready?” Join us on September 7th for our next Pinnacle Fireside Chat.

Please mark your calendars for our next Pinnacle Financial “Fireside Chat”, to be held on Wednesday, September 7th from 7:30am – 9:00am.

Jane will discuss the characteristics of modern retirement and how to plan for it. She will explore different approaches to retirement and some of the factors to be considered. She will also explain the various plans available to help you save for retirement.

The Fireside Chat sessions are informational only (no sales!) and interactive — a great opportunity to learn new things and ask questions in a relaxed environment. These sessions are open to your family and friends, so please feel free to pass this email along to anyone that you think might be interested in attending.

Please call Judy (719-260-9800) if you would like to attend this session on September 7th, as space is limited.

We hope to see you on September 7th! Coffee and donuts will be served!

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