Society of Certified Senior Advisors: Five Ways to Reduce Costs in Retirement

When you start living on a fixed income, you may need to cut expenses. Here are five ways to substantially lower costs.

Many of us are surprised by how many expenses have to be covered by Social Security and perhaps a small retirement account when we no longer have a paycheck. The stark reality may be that we simply can’t afford to continue our previous lifestyle.

To add to the problem, unexpected events often carry financial penalties. Perhaps you had to quit work earlier than you’d planned, or you may have had some big medical bills hit during your last years of saving. Maybe the old car finally gave out. There are a million things that can derail retirement planning, while it’s rare to find that expenses are less than expected.

While you may no longer be able to bring in money, there are many ways to lower your costs. Some of them can add up to a substantial sum; others can find you a few hundred extra greenbacks a year. Whether you need to shave off a big chunk of expenses or just want to create some wiggle room in your budget, reviewing these five major costs can help you achieve your goal.

Analyze Your Spending

The first step to cutting costs is to figure out where you’re spending. That can be as simple as writing down every outflow with pen and paper for a month. Or, you could use a free app such as Personal Capital or Mint to track income and expenses automatically by connecting your banking information. The apps will keep a running tally of every expenditure, including the category (groceries, auto, entertainment, etc.). Users can set a budget for each item, and the app will signal if a budget has been exceeded. It’s a great way to figure out if your expected monthly budget is within your income.

Adjust Housing

Moving to a smaller home can save a bundle of cash. Emotionally, it can be tough to vacate the house where you may have raised your children and thought you’d occupy forever. But financially, downsizing may net you some cash on the sale that can pad retirement accounts. It can also result in lower taxes, utility bills and maintenance costs, and a paid-off mortgage or perhaps a lower interest rate.

If you still have a mortgage on a home you’ll occupy for many years, check to see if refinancing would make sense. Mortgage rates are at record lows, but there are costs associated with refinancing. Check here to view associated costs and then use this refinance calculator to see if it makes sense for you.

Sell a Car

With both of you home, do you really need to have two cars? That second vehicle is costing you in insurance, maintenance fees and a loan payment (if it’s not paid off). Cars also lose value just sitting in your garage, since they depreciate over time.

If you have a single vehicle now, consider getting rid of it. Public transportation may be adequate, and ride sharing has revolutionized the way we think about everyday travel. A healthy option, if you’re lucky enough to be in a walkable neighborhood, is to use your legs for transportation as much as possible.

Move to a Retiree-Friendly State

Every state has its own laws regarding taxes, and that includes for retirees. Social Security income, retirement funds and even pensions are all taxed differently, depending on where you live. If you’re in a high-tax state, it’s only smart to evaluate what it’s costing you and consider going somewhere else if it would be worth the move. Check here to find how each state is ranked, from best (Florida) to worst (Kentucky).

Change Insurance

Most of us stay with the same insurer for years, even decades. That just doesn’t make sense. Insurance companies tend to take advantage of that fact by offering their best deal up front to entice enrollment, then raising rates over time. You can change policies at any time; not just when your policy is up for renewal. So pick a time of year (your birthday is an easy one to remember) and call around for quotes, or use PolicyGenius to automatically shop the market.

Is your car older? In some states, liability insurance is all that is required and you can opt out of collision and comprehensive coverage. If you’re willing to risk having to replace the vehicle on your own dime if you cause an accident, then you can benefit from substantial savings.

As for health insurance, you have options for Medicare, and policies should be reviewed every year during open enrollment. Check to see if your usual costs and health care needs would be better met by a Medicare policy (and Medigap coverage) or a Medicare Advantage plan. Here’s help on how to choose. Finally, check out GoodRx for savings on prescription drugs. The app compares prices near you and searches for coupons at no cost to you.