Retirement finances are actually fairly simple to understand. First, you have income coming in. Second, you have expenses going out. And, in retirement you have savings as a backstop. Retirement savings will cover any gaps between income and expenses. The question about whether you will outlive your money is basically an issue related to how long your savings will last. However, the whole thing is not just about how large your savings are. It is also a conversation about whether you can increase your retirement income and reduce you retirement expenses. If there is not a negative gap between income and expenses, the issue of how long your retirement savings will last becomes a moot point. If you don’t need to tap into savings or if your withdrawals are minimized, you should have the money you need to live.
In this blog post, I want to explore the expense side of the equation. The fundamental question is whether you can reduce your expenses without reducing your standard-of-living in retirement. Having entered retirement myself about six months ago, this has become an important topic for me. I will discuss three elements of retirement expenses that have worked for me: Smart shopping, senior discounts, and relocation.
When people are asked in surveys why they select the primary grocery store that they do, the number one reason is convenience. What this means literally is a store within close physical proximity of their residence. However, reasonable selection of products and brands and good prices also rate relatively high in these surveys. Convenience is important to everyone, but sometimes good product selection trumps pricing.
However, the reality about selection is that most major brands are in most stores. So, if you can get a better price on those items that you want to buy, then why pay more. I have developed a personal shopping strategy around this idea. My primary grocery store is a Walmart Supercenter about 2 ½ miles from my house. Prior to retirement, I wouldn’t have been caught dead in a Walmart. However, retirement brings a certain pragmatism to your life.
Step #1 is to make a shopping list. It has been shown that having a shopping list helps reduce your total costs. I then go to Walmart and buy what I can knowing that prices will be generally lower than in any of the other major grocery chains in the area. However, if I can’t find the specific items or brands that I am looking for at Walmart, I make an extended trip to Publix, another large grocery retailer in the area. Whatever, I can’t get at Walmart, I buy at Publix. This allows me to get the best of both worlds: generally lower prices with the selection that I want.
In addition to smart shopping, it is also wise to look for coupons, either on-line or in the newspaper. I was always under the impression that Walmart did not take coupons. However, that is not true. While my savings using coupons has not been huge, I have been able to knock anywhere from $5 – $15 off of my grocery bill each week. This doesn’t sound like a lot. However, it does add up over the weeks. Reducing expenses is not always one big gain. Sometimes you need to do it with a lot of minor savings that add up to something much more substantial in total.
At first, this was a difficult one for me psychologically. Asking for a senior discount from a business may be admitting that you are old(er). Before I retired, I generally stayed away from these for that very reason. However, mentally I have come to grips with my age and if senior discounts make my retirement finances more stable, why not use them? Sometime these are advertised and sometimes you need to ask for them. However, I am astounded by how many there are.
There is a website specializing in finding businesses in your area that offer them. Go to www.seniordiscounts.com to search out senior discounts. When I did this for Pensacola, Florida, our retirement home, I was surprised to find well over 100 listings. These ran the gamut from travel related discounts such as rental cars, hotels and cruises, to retailers in our local mall, to a whole range of restaurants (fast food and higher quality). I was also able to find discounts on eye glasses, prescription drugs, pet care items and electronics. Although some businesses are more generous than others, the savings in total can be enormous. Remember, every dollar that you save takes a little more pressure off of your retirement savings by reducing your expenses, without reducing your standard-of-living.
Finally, I am a bit of a gym rat. Before retirement, I was paying the YMCA $52 a month to use their gym facilities. However, in retirement I joined a Medicare advantage plan run by Humana. These plans deliver your medical benefits and are paid by Medicare so there are no additional costs involved beyond the monthly Medicare premium. As part of this there is the “Silver Sneakers” program where some gyms in the area give you a free membership and this is paid for by Humana. So, this saves me over $600 a year and still allows me to stay fit.
Are you getting the point? There are a lot of little savings that you can tap into that will add up to some fairly substantial savings in total. You can maintain your lifestyle at a reduced cost.
Relocation is something that I have addressed in this blog before. However, it is worth a revisit. There is a great website that allows you to compare the cost-of-living in various locations. This website is www.bestplaces.net/col.
Relocation is one potential way to cut day-to-day living expenses if you move to an area that is cheaper. Prior to retirement, I was living in Ellisville, Missouri, a suburb of St. Louis. As I began to search potential retirement locations, I explored Pensacola, Florida where we eventually moved. So, I went onto Best Places and looked at the cost-of-living comparisons. Here is what I found
Average US City———————-100
What this was telling me was that the cost-of-living in Ellisville was 5% more expensive than the average US city. However, it was 12% cheaper to live in Pensacola than in the average US city. Let’s say, for the purposes of example, I had a household income of $100,000 in Ellisville. It would cost me only about $95,000 to maintain the same standard-of-living in the average US city.
But, what if I moved to Pensacola? The math is simple:
(Pensacola Index/Ellisville Index) x Ellisville income
(88/105) x $100,000 = $83,810 (relative Pensacola Index to Ellisville = (88/105) x 100 ~ 84)
In other words, the lifestyle that cost me $100,000 in Ellisville would only cost me about $84,000 in Pensacola, Florida. However, here is where it gets interesting. Before I retired, I calculated my “magic percentage.” This is the percent of my pre-retirement income that I would need in retirement. Everyone is different, but a good average is around 75%. Let’s say that you do the math and 75% is your magic percentage. This would apply directly to costs in your pre-retirement location, Ellisville in my case. Now, let’s say that I decide to move to Pensacola. I would have a new magic percentage, because the cost of living would be cheaper. The cost-of-living in Pensacola is only 84% of that in Ellisville. So, taking this into account, my new magic percentage would be:
75% (Ellisville Magic Percentage) x 84% (Relative Pensacola Cost-of-Living) = 63%
My retirement cost-of-living would drop to 75% of my pre-retirement income in Ellisville, but would drop even further to 63% in Pensacola. Look at this as another potential way to maintain your standard-of-living at a reduced cost. Obviously there is more to a relocation than just cost-of-living. However, in my case I smile each time I am paddling my kayak in the inter-coastal waterway in Pensacola in 70° weather amid reports of dire snowy and icy conditions in St. Louis. I think that I made a very good choice in a number of ways.
So, there are many ways that you can reduce your retirement expenses and still maintain the same quality of life. Just remember the point of this post. If you can cut your living expenses, you can extend the life of your retirement savings. If you can do this and still maintain your standard-of-living that would be the best situation of all.