4 retirement money wasters to avoid

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Many retirees are concerned whether their savings will last through retirement. Prudent investing can certainly help, so that your money will grow, but the other important element is to manage your spending and avoid unnecessary expenses. Here are some common retirement money wasters that could make the bottom fall out of your retirement nest egg.

1. Not minimizing your healthcare costs. In retirement, healthcare costs typically increase as a percentage of income. A lot of that money is spent unnecessarily. A Fidelity Investments survey showed in 2015 that 74% of couples are concerned about meeting healthcare costs in retirement. In another survey by Voya Financial, 41% of respondents cited healthcare costs as their biggest worry in retirement.

There is a wide variety of Medicare supplemental policies, and a wide range of premiums you would pay for each.  It’s important to comparison shop and find the lowest cost plan that meets your needs. But it’s also important to carefully examine the terms and conditions of each policy to ensure there are no hidden fees, and all of the treatments and medications you need will be covered. You will also want to check again periodically to see whether you can save by switching your current plan to another one.

Likewise, there is a significant difference in the costs you pay for prescription drugs. You might want to look around for lower cost Medicare Part D policies each year and compare pharmacies for the costs on medications you take. Medicare Advantage plans which offer comprehensive coverage are also an option.

Equally important is to keep in good health. A Merrill Lynch survey found 81% of retirees consider staying healthy as the most important requirement for a happy retirement, ahead of financial security. A study by Fidelity found that a person in poor health would need to spend an additional $15,200 annually on average for healthcare; in order to generate this additional income from savings, the individual would need around $400,000 in savings. However, 72% of Americans follow unhealthy activities like smoking, excessive drinking, insufficient sleep, carrying excess weight, or physical inactivity, according to America’s Health Rankings. This makes the risk of poor or fair health six times higher than a person who engages in none of these activities.

Here are some things you can start doing to promote good health:

  • Exercise at least 150 minutes per week. For example, take a half-hour brisk walk each evening.
  • Get at least seven hours of sleep each night
  • Don’t smoke
  • Use alcohol moderately
  • Don’t sit more than five hours per day. Get up and walk around periodically.
  • Eat fresh fruits and vegetables instead of fast food and processed food
  • Stay in a healthy weight

 

Also important is maintaining social interactions. Many people get much of their social contact through work, and lose that when they retire. Joining a church or community organization, cultivating a social hobby, volunteering, and socializing with friends and relatives are good ways to create and maintain social interactions.

2. Not updating your costs. After you retire, many of your expenses will go down.  Your commuting expenses will decrease since you no longer travel to work each day. You might also need to review your insurance policies – your driving mileage went down, and so should your auto insurance premiums. Additionally, you may have had higher rates while your teenage children were on your policy. After they move out of the house, that should also lower your rates.

If you have life insurance while raising a family, you could also consider revisiting that. It’s possible you might not need as much coverage and could restructure the policy to have premiums paid from the cash value of the policy. If you have a cash emergency fund to cover unexpected expenses, ou could also raise the deductibles on your home and auto policies to lower the premiums.

By the same token, your living accommodations may also need a review. Once it’s just you, or you and your spouse, that five-bedroom house can seem rather large and empty. Plus, you no longer need to live in a premier school district. Downsizing to a smaller home, possibly in a lower-cost area or state, can save you thousands in taxes, living costs, and potentially maintenance and insurance.

3. Spending more than you need to. It’s good to have hobbies and recreational activities, but once people reach retirement, they often go overboard on the lifestyle purchases. A vacation home, yacht, and luxury car may seem like appealing luxuries you had to deny yourself while you were working. But the costs quickly add up, and you might not end up using and enjoying these items as much as you expected. Investorjunkie has an interesting suggestion: rent instead of buy.

You might also want to take advantage of senior discounts on dining out, travel, and hotel accommodations. Since your schedule is more flexible now, you can also take advantage of off-peak discounts. Many famous parks and foreign destinations, for example, offer discounts of up to 50% for off-season visits.

4. Carrying debt. Although sometimes debt is unavoidable, making regular payments on a mortgage or credit card balance can eat away at your retirement income. Interest raises the effective cost of everything you buy. You will want to avoid carrying debt in retirement as much as possible.

This video gives some ideas for saving monthly in retirement.

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