Many baby boomers have retired from the workforce, but you might not be able to tell from their spending habits. While it’s important for them to enjoy their golden years, some aren’t doing the best job of living on fixed incomes.
The first boomers turned 62 years old in 2008 and the youngest will celebrate their 67th birthdays in 2031. Therefore, some members of this generation have been retired for years, while others don’t plan to retire anytime soon.
Of baby boomers still working, the median amount of savings they believe they’ll need to feel financially secure in retirement is $750,000, according to a survey conducted by Transamerica Center. However, the average worker in this age group has saved just $202,000.
For those currently retired, Social Security certainly helps supplement their income, but the average benefit is just $1,691.53 per month. Therefore, many retired boomers may need to tighten up their spending a bit to ensure they can continue living comfortably throughout retirement.
Are you a baby boomer growing concerned about the amount of money in your savings account? Now is time to create a plan that allows you to cut back, while still enjoying your golden years.
Here are seven tips from financial experts to help identify ways you’re wasting money in retirement and turn things around.
Failing To Plan Vacations Strategically
“While I wouldn’t categorize vacations or experiences as a waste of money, traditionally we see baby boomers spending more in these areas in retirement because they now have the time check things off their bucket list, create memories and try new things,” said Steve Sexton, retirement planning expert at Sexton Advisory Group.
However, when planning vacations, he recommended being as strategic as possible to save money in the long run.
“For example, you can save hundreds, if not thousands, of dollars on travel and accommodations if you avoid planning a vacation during peak travel season,” he said. “Or, consider more local getaways that you can drive to, which can save the money you spend on airfare.”
If those ideas don’t work, he suggested getting a little more creative with your plans.
“Some of my clients choose to swap houses with friends who live abroad, or offer to house sit when they’re away, to save money on hotels,” he said. “Lastly, choosing the right credit card that offers travel rewards and points can be incredibly helpful on saving money on travel.”
Buying Expensive Gifts
“Baby boomers, especially those with grandchildren, often splurge on gifts for family and friends,” Sexton said. “While gifts can be a thoughtful way to express your love and affection, it certainly isn’t the only way.”
Instead, he recommended finding meaningful ways to shower family and friends with love that don’t require much — or any — money. He suggested writing thoughtful letters or giving baked goods.
Overpaying for Medical Care
He wouldn’t categorize medical care as a waste of money, but Sexton said how you handle healthcare bills can largely impact your finances.
“Always ask for an itemized medical bill to ensure you weren’t incorrectly charged or double charged for a medical service or procedure,” he said. “You can also call your provider to ask which fees can be waived, if they offer discounts [for] financial hardship or can put you on a payment plan without interest.”
Ultimately, he said, planning ahead and having enough money in your emergency fund to cover unexpected medical bills can keep you from having to dip into your savings or retirement accounts.
Paying Bills for Adult Children
As a father himself, Michael Gennawey, CRPC, LPL-affiliated financial advisor at SoCal Wealth Management, understands the desire to do anything for your children. However, he said paying recurring bills for your adult children — e.g., rent, car insurance, mortgage, their portion of your cellphone provider’s family plan — can add up fast.
Gennawey said it’s important to consider the potential implications of continuing to pay their bills. Who will they rely on if you run out of money? And will they support you in your later years?
“If the payment went from temporary help to a permanent expectation,” he said, “confront the child about taking on the payment for themselves.”
This is important, he said, because continuing to pay the bill(s) could jeopardize the success of your financial plan.
Thinking a Timeshare Purchase Is an Investment
“Many times, I see clients attempt to explain how their timeshare is an investment,” Gennawey said. “They will say their children can inherit it just like their IRAs or that it is real estate on par with a rental property.”
However, this is rarely the case, he said, so timeshares shouldn’t be considered equal to stocks, bonds or real estate. Plus, he said, clients often stop using timeshares as they age, but that doesn’t stop maintenance fees from increasing, and giving the keys back will yield just pennies on the dollar to your total cost of ownership.
Gennawey said timeshares are great ways to create memories with loved ones, but they won’t lower your travel expenses, create lasting income or grow your long-term wealth like a diversified portfolio of ETFs or mutual funds.
“If you love the idea of timeshares,” he said, “model it into your financial plan to confirm that it is forever affordable.”
Applying for a Loan To Cover a Planned Expense in Retirement
“When I craft financial plans for pre-retirees, there is almost always a request for a large expenditure in the first few years of retirement,” Gennawey said. “Baby boomers need to get the resources gathered for these life upgrades before they stop working in order to get the best interest rates and most favorable loan terms.”
He advised penciling out the true costs of large expenditures into your financial plan to make sure you can truly afford them.
Completing Expensive Home Improvement Projects
When you retire, you’ll probably find yourself with a lot more time on your hands. This might inspire you to complete home projects that cost a lot of money, said David T. Bowman, AAMS, LPL-affiliated financial advisor at Carolinas Financial Planning.
“If the assets are in place and you want to remodel a different room every two years, have at it,” he said. “But in constrained cash flow projection scenarios, home projects are an outflow that can have a major impact on the future.”
When living on a fixed income, he said, it’s important to be aware of your finances and keep your wants in check.
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