The biggest fear of people who have retired is running out of money.
In a survey recently conducted by the American Institute of CPAs (AICPA), 41% of CPA financial planners say that, no matter their clients’ net worth, running out of money is the top concern of their clients.
Their fears may be justified. Susan Tillery, chair of the AICPA PFS Credential Committee, says, “The elderly are living longer than their projected longevity and, as a result, are running out of money.”
Prevent Running Out of Money
Before you retire, your Social Security and consider the benefits of an immediate annuity before you retire. The later you retire, the better is the maxim when it comes to Social Security benefits. Coordinate your benefits with those of your spouse to maximize them.
Another option is an immediate annuity, although it is not for everyone. The purchase of an immediate annuity will provide a stream of payments guaranteed for the rest of your life. The disadvantages are that some annuities have extremely high fees, the funds are only available on a schedule, and the invested money is not available to your heirs.
Once you’ve retired, it’s important to protect yourself from inflation with a combination of your Social Security benefits and Treasury inflation-protected securities. Work with your financial advisor at least once each year to tweak your portfolio for optimal results.
Key to remember is to maintain a budget. Withdrawing a maximum of 4% of your investments, if your ratio is 35% U.S. stocks and 65% corporate bonds, gives you an 89% chance the money will last 35 or more years, according to the Congressional Research Service.
How to Set Up Your Budget
- List your expenses in three categories—essential monthly expenses, nonessential monthly expenses, and essential yearly expenses (property tax, insurance, etc.). Don’t forget birthday and Christmas gifts, pet costs, tips, and estimated medical costs.
- Allocate your expenses over a full year. For example, if you spend $500 on Christmas gifts each year, put that amount in November and December. If you pay your insurance once a year, list that expense in the month you pay.
- Add up your total expenses and your total income for a year.
- If your expenses are almost as high, equal to or greater than your income, adjust your budget by reducing non-essential monthly expenses.
- If your income is significantly higher than your expenses, you can modify your lifestyle upward. However, always be aware of how your investments are doing, because a loss may reduce your monthly income significantly.
Money-Saving Tips to Live on a Budget
No matter how well you plan, something will come up. Your investments don’t produce as much income. Your furnace needed repairs. You spent too much on vacation.
Because it’s unlikely you’re going to get more income, it’s vital to be able to save money.
Here are 20 money-saving tips you may not have considered:
Money-Saving Tips for Food
- Senior discounts. Restaurants almost always offer senior discounts, but have you checked your local grocery store? Here’s a list of some supermarkets that offer senior discounts.
- Clip coupons. The Sunday paper usually has coupons. Organize your coupons, use them and see how much you can save.
- Price match. Many stores, most notably Walmart, offer price matching. If you have an advertisement from another store with a lower price, Walmart will match it. In many cases, you just have to mention the store with the discount and the price.
- Eat meatless once or twice a week. Not only will it help your wallet, it’ll improve your health.
- Grow a garden. Even if you grow herbs in a pot in your kitchen, you’ll save money.
Money-Saving Tips for Entertainment
- Use your local library to check out books, videos, DVDs and CDs or download them to your tablet.
- Cut the cable. If you only use your TV for background sound or for a few programs, try YouTube, NetFlix, Roku or DVDs from the library. The average cable bill is about $100 a month, so you can save significantly. You can get local news online now, so that shouldn’t be a concern.
- Minor-league baseball is real bargain. Tickets, food and souvenirs are all much cheaper than major-league baseball.
- Enjoy free concerts. Most towns offer free concerts on Saturdays or Sundays during the summer. Take advantage of them.
- Eat a snack at home before going out for dinner.
Money-Saving Tips for Travel
- Bring your own snacks when flying or traveling. It’s healthier and saves money.
- Weigh your luggage before you leave home to avoid over-limit fees. Check out this digital luggage scale.
- Consider a home swap. Coordinate your holiday with someone else’s and swap homes for the duration of the stay.
- Rent an RV to save money on travel costs and add the flexibility of being able to diverge from your planned schedule with few or no repercussions.
- Use Facebook to find travel groups that can alert you to specials. You may also be able to use these groups to arrange a stay in someone’s home, where you’ll not only save on hotel fees, you’ll get to know the area better.
Money-Saving Tips for Home
- Consider making your own laundry detergent and other cleaning supplies. It’s surprisingly easy and can save up to $100 a year. Environmental safety is a bonus.
- Stop collecting and start selling. Most of us have small collections of things that are cluttering up the house. Look through your collections and sell them online via Facebook, Craigslist, eBay, Etsy or Amazon.
- Donate a lot. If you donate a lot of things to a local charity thrift store or make a big donation, such as a car, ask for and save the receipts. If you donate enough, you can deduct them from your taxes.
- Use compact fluorescent lamps (CFLs) instead of old-fashioned bulbs. If you replace the bulbs in your entire house with those new twisty-looking bulbs, you can save $100 or more in a year.
- Consider downsizing to save money and time and, perhaps, generate additional income.
Consider Your Biggest Expense
As you grow older, your home may become your biggest expense. Even if you own the house free and clear, expenses include property tax, insurance costs, utility fees, homeowner’s association charges, maintenance costs (mowing the lawn, washing the windows, shoveling the snow), and repair costs.
A home also has an opportunity cost, because while you’re busy taking care of the house, you’re not able to do other things. In addition, all that equity you’ve earned after years of work is just sitting there and doing nothing for you. Instead, you could turn that equity into investments to help fund your retirement.
Is It Worth It?
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