With a lot of discussion about how to have enough for a comfortable retirement revolving around stock markets, bond yields and 401k accounts, it’s easy to overlook one of the simplest tools for ensuring that your nest egg doesn’t crack early: good old-fashioned budgeting.
A new survey from GOBankingRates polled more than 1,000 Americans on their spending habits and revealed that retirees can save an additional $8,000 a year if they cut certain expenses from their budget.
Budgeting to a Better Retirement
The effect of saving $8,000 a year on your budget can be enormous, especially for someone living on a fixed income. And for retirees — who will likely be leaving that sum in their retirement accounts — the savings also translate to additional investment returns.
According to Mutual of Omaha’s savings calculator, a nest egg of $500,000 earning returns of 7 percent should last just 19 years if your federal tax rate is 25 percent and you’re withdrawing $3,500 a month, which is the equivalent of spending $42,000 a year. However, reduce that withdrawal amount by $666.67 (the monthly savings of $8,000 a year) and it jumps all the way to 28 years — buying you almost an extra decade on your retirement account.
Ride-hailing services like Uber or Lyft might offer big savings over the traditional taxi, but it’s still a cost that can really add up. Respondents over age 65 spent an average of $22.11 a week on ride-booking services or taxis — the most of any age group in the survey — for a total of $1,149.68 a year. If you use carpools with friends and public transit to eliminate half of your ride-hailing costs, it can make a big dent in your spending. Not to mention, the health benefits of regular walking are well-documented, particularly for older Americans.
Savings Subtotal: $574.84
Going out for drinks with friends can be one of life’s great joys. However, it’s also fairly pricey, with the monthly cost for those aged 65 and older averaging out to $19.68. Although that’s somewhat modest when compared to younger Americans, it still adds up to $236.13 a year.
If you can stick to water every other evening out, you can potentially shave almost $120 off of your budget.
Savings Subtotal: $692.91
New Clothing and Accessories
Periodically getting new threads is a priority for the fashion-forward, but it’s also a great place to find a little more space in your budget. A new wardrobe can be pricey, but opting to shop at discount retailers or thrift shops might help you stretch your money further. The average retiree spends an average of $55.56 a month — or $666.69 a year — on new duds and accessories, so cutting half of that out saves over $300 per year.
Savings Subtotal: $1,026.25
Don’t Miss: 17 Clever Ways to Save More for Retirement
Attending concerts and sporting events is a fun time, but it’s also costly. Limiting yourself to free shows and only attending the tailgate will keep more cash in your savings account. The average monthly expenditure on events for the 65-and-older group reported in the survey is $15.87, which comes to $190.43 a year. Cut that in half, and you could stretch your budget that much further.
Savings Subtotal: $1,121.47
There’s a reason why virtually every article you see on tips to save money ends up putting that daily latte in the crosshairs. Those regular $5 coffees are real budget killers. Retirement-age respondents in the survey reported average weekly coffee expenditures of $14.17, which translates to an annual hit of $736.67. That’s money you can save by making your coffee at home.
Savings Subtotal: $1,489.80
A good meal at a nice restaurant can seem priceless in the right company, but there is very much a price — and it can add up. The average weekly outlay on getting delivery or takeout and visiting restaurants was reported at $37.58 by those aged 65 and older in the survey, translating to an annual cost of $1,954.12. So, cooking at home instead of ordering or eating out half the time can save you almost $1,000 a year.
Savings Subtotal: $2,466.86
A Second Car
The costs of owning a car can be steep, but they’re entirely necessary when you’re working every day. However, learning to get by on just one car or selling your ride and taking mass transit can lead to major savings. Per the Bureau of Labor Statistics, the annual cost of owning a car — once you’ve factored in insurance, repairs and gas — comes to $4,064, which would cover the cost of all of your coffees, clothes, ride-hailing trips, drinks at the bar and concerts. If you can eliminate a second car, it could mean saving a lot of cash.
Savings Subtotal: $6,530.86
Clearly, you will still need a safe and affordable place to live in retirement. However, ensuring that you’ve polished off payments on your mortgage prior to retirement means you won’t have to pay the additional interest costs associated with that loan. The Bureau of Labor Statistics puts the average annual expenditure on mortgage interest and charges at $1,574.
Savings Total: $8,104.86
Just Like Getting 50% More From Social Security
Saving $8,000 a year is a major boon for almost anyone, but it can be especially meaningful to retirees on a fixed income. Given that the average Social Security benefit comes out to over $15,000 a year, it’s the equivalent of freeing up over half of your monthly check.
Or, to put it another way, a $500,000 nest egg earns about $5,000 for every 1 percent of investment returns, so saving $8,000 a year is essentially like finding another 1.6 percent return on your portfolio every single year. If you found a savings account that boosted your interest rate by almost 2 percent, would you pass it up?
Clearly, how your budget stacks up against the people responding to this survey could vary, so how you cut back might differ as well. After all, that daily cappuccino or monthly new outfit could be a big part of what makes you happy, which is what retirement is really about in the end.
However, it’s worth noting that a large portion of Americans are very much struggling to make ends meet in retirement. Previous surveys from GOBankingRates revealed that you’ll need at least $1 million saved in every state in the country — including a stunning $2.3 million in Hawaii, the nation’s most expensive state — but 42 percent of Americans have less than $10,000 saved to fund their golden years.
Fortunately, you can take control of your situation by cutting back on these expenses. It’s not always easy to pass on a meal out or a fancy cocktail, but it can make a big difference in the long run.
Click through to see exactly how much you need in retirement savings in your state.
More on Retirement Planning
- This Is the Toughest Financial Hurdle Retirees Face Today, Survey Finds
- The Astonishing Reasons Many Aren’t Ready to Retire
- States Where Your Social Security Check Will Go the Furthest
- Watch: Planning Where to Retire? This State Could Be the Worst Option
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