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Happy retired couple sitting on the bench , talking about the savings they made for retirement costs

5 Quick and Easy Ways to Cut Your Retirement Costs

Once you have retired, you face a challenge: learning how to manage your retirement costs with a reduced level of income. According to the Federal Reserve’s Survey of Consumer Finance, 47% of Americans between 55 and 64 had no savings.

Although the average retirement age in the United States is 63, 25% of Americans believe they will work to the age of 70 to ensure they have enough to live on in retirement.While one obvious way to handle the situation is by saving from an early age, this article looks at the other tactic you can use: cutting costs to remain comfortable in retirement.

1. Smart Healthcare Shopping

The research conducted by HealthView is one of the most commonly cited sources when outlining the cost of healthcare in retirement. In 2015, its study suggested that the average healthy American couple aged 65 would spend $266,000 on healthcare in retirement.This figure assumes that the hypothetical couple has a supplemental policy and is covered by Medicare Parts B and D. HealthView also clearly outlines how expenditure increases as you get older.

Obviously, one of the best ways to cut medical spending is by living a healthy and active lifestyle. If you are a smoker, quit. If you overindulge on food and alcohol, cut back.If you don’t, you risk serious illnesses that are costly to treat.

The largest proportion of your healthcare expenses in retirement relates to out-of-pocket costs, such as prescription drugs, coinsurance, and copayments. When it comes to regular treatments and services, you must become a perceptive shopper. Learn how much a doctor’s services cost and shop around when possible. For example, it costs more to have an MRI performed at a hospital than it does at a radiology center.

The terms of the Affordable Care Act mean that insurers have to cover certain preventive screening services for a low cost. It is free in some cases. As a senior, you have access to a variety of screenings, including those for high cholesterol and several types of cancer. When you catch a disease early, you can prevent it from spreading and becoming a costly and life-threatening problem.

2.Choose Generic Prescription Drugs

If you have a chronic disease, prescription drugs can make a sizeable dent in your retirement savings. On average, seniors spend up to $15,000 in out-of-pocket drug costs, even though you can purchase Medicare Part D coverage to ease some of the burden. There is still a coverage gap no matter what insurance you have. A smart way to save is to ask your physician if there is a generic version of the drugs you need. Note that all medicines have one generic name, so learn it to avoid taking an overdose if you use the same medicine under different brand names.

Your plan may also offer a discount for using a specific pharmacy. Another way to save on your prescription drugs is by signing up for a mail-order service, or purchasing your medication in larger quantities.

3. Reduce Discretionary Spending

For most people, it is easier to reduce expenses than it is to boost income. Most retirees spend at least 20% of their budget on recreation such as dining out and vacationing. Although no one wants to tighten their belts in retirement, you can live without exotic travel and fine wine for short periods. Why not create healthy and delicious food at home and dine out on your patio?

Your task is to identify what we call discretionary spending and decide if you can live without these items in retirement (for a specific period). If recreation is your largest expense, for example, consider ways in which you can live the lifestyle you desire without breaking the bank.For instance, you could elect to live in a gated community that offers low-cost recreation opportunities.

4. Prepare to Downsize

Whether you like it or not, you probably don’t need a large house when you reach retirement age. The kids are now adults and have their own homes. It is normal for those in their 50s to have a large $400,000 property near the beach, for example. After all, your earning power increased as your career progressed, and you rewarded yourself with a fabulous house. You could downsize to a two-bedroom home in a beautiful community for as little as $200,000.In addition, homeowners spend up to 4% of a property’s value on repairs and maintenance annually. When you downsize, you will slash these expenses.

Using the above example, you would have a net gain of $200,000, which you can use to generate further retirement income. You can use the cash to invest in the stock market or play it safe and annuitize it for guaranteed monthly income. Another option is to sell your home and rent your next property. The most important thing is to downsize on your terms. Only do it if you still enjoy your lifestyle and end up with a significant increase in savings.

5. Slash Your Tax Bill

Taxes are still a major source of expenditure for retirees. You can make serious savings by availing of the tax breaks available to seniors. If you are still working, contribute to a Roth IRA to lower your taxes when you retire. The withdrawals you make with a Roth IRA are tax-free. Compare this type of savings to regular IRAs and a 401(k) account and the difference is clear because they have minimum distributions beginning when you are 70.5 years old. When you withdraw money from a non-Roth savings account, you pay tax.

There is also a medical expense deduction, which allows you to deduct out-of-pocket costs greater than 10% of your adjusted gross income (AGI). For example, if you have an AGI of $50,000 and spend $12,000 on healthcare, you can deduct $7,000 in the tax year.

Final Words

For the most part, cutting your retirement costs boils down to common sense. While there may be an element of sacrifice involved, you can easily keep plenty of money saved and enjoy your golden years in the way you have always dreamed.

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