Morningstar.com is all about managing your investments, but many users in our dot-com community clearly recognize that managing the other side of the ledger--their household's monthly outflows--is also crucial.
To tap into the collective wisdom of our many retired posters, I asked them to share their best money-saving tips for their post-workplace years, via the Investing During Retirement forum of Morningstar.com's Discuss boards. Their ideas flowed in fast and furiously, with tips on everything from cars (drive older vehicles) to food (cooking with high-quality ingredients can cut your health-care costs ) to kids (be careful about loaning money to adult children). And while posters voiced near-universal agreement about the value of sticking to a budget, they didn't line up on every topic, especially whether to pay off a home before retirement or retain a mortgage to improve cash flow.
Whether you're already retired or retirement is many years into the future, you owe it to yourself to read the complete thread. A few posts are laugh-out-loud funny, but there are also plenty of insights and practical tips. To read the complete thread or share your own budgeting tip, click here (http://socialize.morningstar.com/NewSocialize/forums/p/297370/3183229.aspx#3183229).
'Things Turned Around That Very Month'
If retired posters agreed on any one topic, it was on the value of having a budget and sticking to it. Bubbygator kicked things off with this advice: "Keep track of your expenses. It's impossible to plan without a serious record of monthly expenses."
Betsesequim knows what many successful budgeters know: that adhering to monthly expense targets requires monitoring on a regular basis. "I set up a spreadsheet on my computer to keep track by the following categories: electric/telephone, propane, medical, insurance (house, cars, and liability), house maintenance, cars and gas, food, clothes, entertainment (satellite, books, and movies), eating out, travel, and misc/cash. Then I can compare year-over-year numbers and revise the budget as needed."
For ChristineM and her crew, budgeting is a family affair and a lifelong endeavor. "Do a family budget at the start of each year and then agree on annual targets for each family member. For example, my daughter has an overall total that she can spend or roll over from month to month. If she spends more in one category or in one month than another, that is her choice; the family cares about her total spending over time. Making each one accountable for their share of the family budget teaches responsibility and prevents the budgeter from being the 'ogre who says no.'"
Other posters also provided concrete tips for getting a handle of budgeting, with some using the old-fashioned pencil-and-paper method and others embracing software packages and online tools for budgeting.
Hondo's methods have evolved with technology. "Many, many years ago, we did not have a budget. We were not in debt, but we never had anything left over at the end of the month. So I took a pencil (this was pre-computer days) and a loose leaf notebook and made a budget. Things turned around that very month. A few years later we purchased our first computer and Quicken program."
Gyer12 recommends mint.com, while jtlawlor espouses using multiple online tools, including those from the Department of Labor and T. Rowe Price, that can address retirement planning and budget issues. Poster shifty astutely observed that retirees can more readily stick to a budget than working folks because they "have more time to track expenses and concentrate on methods to economize."
Cash or Charge?
For posters like OnMyOwn and others, the best way to stay on a budget is to make spending as visceral as possible. "Stop using credit cards to gain the 1% cash back and start each month with plain old cash. Watch the cash disappear out of your wallet and the fear of the end of month with no cash will save you much more than the 1% cash back. The big items like taxes, utilities, insurance, and so on are hard to reduce, but they will become clearer as the number of trees in the forest of expenses are cut down to far fewer."
Wizard believes the key to financial success is avoiding debt at every turn, writing, "When I make a major purchase (new appliance or furniture, 'new' used car, and so on), I pay for it in full. If I can't pay for it, I don't buy it. Following the simple dictum of spending less than I earned allowed me to pay off my mortgage by age 42, and retire at age 50 (two years ago). Prudent, low-cost mutual fund investing (guided by research on Morningstar.com) didn't hurt, either!"
Yet other posters disagreed, arguing that the prudent use of credit can bring valuable rewards. Ubiquilo advised, "Pay for stuff on a credit card that has decent rewards (for example air fares on Capital One(COF) cards). Pay it off monthly."
Afloridaguy also espoused the merits of using a single card with healthy rewards, suggesting, "Get a rewards credit card and enjoy a 1% rebate on many of your monthly expenses--groceries, cable television, and so on. Some cards will give you a 5% rebate on gas purchase--that is 17.5 cents per gallon! Also, you will only write one check a month instead of six or seven and save on the cost of the check, envelope, and postage."
The rift between those who are in favor of prudent debt management and those who would avoid debt at all costs was particularly apparent in the realm of mortgages. Some posters noted that the best financial gift they'd given themselves was to pay off their mortgages prior to retirement, while others argued in favor of maintaining a mortgage because of the interest deductibility and the ability to better manage their cash flows.
For Stanley, the decision is black and white: "Pay off your mortgage!"
Gyer12 observed that it's difficult to beat the guaranteed return you're able to earn by retiring debt. "It is very hard to justify not paying off the mortgage. Making 5% net on an alternative investment is tough."
Some posters countered that those who prematurely pay down their mortgages are foregoing liquidity and the ability to manage their cash flows. Kaitlyn opined, "If you have your house paid off and you have no heirs to leave it to, there is no point in paying off your mortgage. No point in having all your money tied up in your house because you can't take your house with you when you die and you could use the extra money to live on. Better to have a mortgage payment in my case."
For Reddog, the lost mortgage interest deduction is the biggest downside to prepaying a mortgage: "It's not a good idea to pay off mortgage. It's the last great write-off you have to deter taxes. Yes, the standard deduction does most people no good. If you're a high-income retiree, it's a bad plan to pay it off."
Other posters, meanwhile, don't agree with that logic. SouthsideJim was the most vociferous, writing, "Please stop perpetuating the falsehood that paying mortgage interest results in tax savings. All the tax deduction does is reduce the effective interest paid. Paying $10,000 in mortgage interest and getting a $3,900 (I'll use the higher rates) results in a net mortgage interest of $6,100. I don't see any 'tax' savings in that calculation. I do see a net 'cash expense' of $6,100."
He went on, "As for earning more [in the market] than one is paying for a mortgage, 5%-10% is not guaranteed. Ask anyone who tried this strategy starting in 2000, the Dow Jones Industrial Average returned an average of less than 2% per year during the decade."
Other posters argue that not getting caught up in McMansion whirl had been key to their financial success. JHAsheville wrote, "We live in a home we've upgraded (with cash) during the past 18 years to keep contemporary, did a dirt cheap refinancing when the time was right, and enjoy a mortgage of $800 (can't get a rent for those rates)."
Swoone advocated for owning a two-family house. "Live in one apartment and rent the other apartment to a friend or family member. Don't get greedy about how much rent to charge, especially if you have a good tenant. You can write off any maintenance and upkeep of the apartment and you will have a monthly income stream."
Jhamlin started downsizing as retirement drew near. "I had two houses, two cars and a time share. When the recession hit I started downsizing. I now have one house and one car. The house is half the size of my previous home. As a result the bills are much lower and the taxes. It was the right way to go."
BallThree has taken his act on the road. "I bought an elegant little RV, big enough to live in and small enough to drive. Which worked out fine, since I later became a substitute teacher, where mobility between school districts came in handy. No rent; I park on the street or in shopping centers. I have solar panels for electricity, and wireless computer and phone."
Poster Kaliorexi, meanwhile, has moved abroad and never looked back. "From real estate taxes to grocery shopping, from car maintenance to medical expenses, the cost of living in Mexico is about half of that in the United States. Most importantly, it can be done without sacrificing a bit in quality of life and in fact in some areas improving it by a large margin."
'These Little Things Mount Up'
For other posters, their biggest cost-savings recommendations came not in the realm of direct housing costs but rather in the areas of utilities and upkeep. Xdickben wrote, "I do more of the maintenance and repair of the 'old homestead' myself, avoiding professional costs."
Smokey has found ways to trim monthly expenses, cutting cable, buying an energy-efficient heat pump, and dropping his telephone landline. He concluded, writing, "These little things mount up. I saved $2,352 on just my utility bill."
Afloridaguy argues that managing power expenses is a key means of cutting costs. Among his tips are turning off lights and TVs, turning down the thermostat, and waiting to amass full loads of dishes and clothes before turning on the washers.
Jomil found it easy to give up cable, noting, "It wasn't the expense, as much as the quality of programs, and the constant repetition. Whenever I'm in a situation with others, and the TV is blaring away, I know that I made the right decision."
Jhall1941 has found a way to trim costs on two residences. "We have a second home in a warmer climate and while we are absent from one home we place the cable, Internet, and telephone on vacation for a small monthly fee. We leave an auto at one location and two autos at the other location, and while we are absent we put the liability insurance on hold until we return. Some insurance companies won't allow you to do this but if you shop around you can find ones that will."
Several posters also enthused about the benefits of driving cars for many years rather than getting a new one every three or four. Bubbygator wrote, "Buy a reliable car and keep it at least 10 years! Nothing eats away at a savings plan more than 'upgrading' cars."
Tpetey, meanwhile, advises that many two-car households can readily go down to one during retirement. "If possible, go to one car or do it as soon as it is practical. Less maintenance, lower insurance costs."
Sergebbaudaer leaves the car at home when he can: "The best thing I've ever done was switching to an electric bike. Leaving the car as much as possible saves gallons of petrol. And it's healthy and a lot of fun."
'You'll Live a Healthier Life'
Posters also weighed in on the virtues of eating out less and cooking at home more.
Tpetey advised, "Eat most of your meals at home and go out for special occasions: controls weight, blood pressure, cost."
Dmdgardener shared numerous tips for cutting food costs. "Leftovers get eaten at another meal. When planning meals, I 'shop' from the freezer and pantry. At the grocery store, I focus on produce and dairy, buying other items only if they are on sale. If it's a good sale, I stock up. If I really need an item and it's not on sale, I buy only the minimum in hopes that it will go on sale before I need more. I'll use coupons only if they are for something I need and would buy without a coupon."
Several posters pointed out that in the long run, eating healthfully is one of the best ways to control long-term health-care expenses.
Don1939 wrote, "On grocery buying, I ask my wife not to skimp on quality. If possible buy local produce and so on as you will know the quality is best available. This will probably increase our grocery bill, but it may decrease our health costs."
Festus is on a similar page: "Plant a garden and have more nutritious fresh food and cut your grocery bill. Freezing and canning the extras pays off. We realize over $1,000 in savings by doing a little hands-on work."
BallThree has gone vegan and never looked back, writing, "I switched to a vegan diet, and my weight, cholesterol, blood pressure, and food expenses are all down. So far so good."
BernieB meanwhile, enthused about staying active and enjoying some camaraderie along the way. "Create a social 'network' of people with whom you get some exercise (especially walking). You'll live a healthier life, enjoy it more, and spend less on health care."
'You Don't Want to Run Out of Money'
Readers' tips weren't limited to matters of hearth and home.
Poster A0110915's common-sensical advice for retiring total in-retirement costs? Defer defer defer. "Don't retire too early, and keep inflation in mind (in other words, retire later than you think you need to). You don't want to run out of money when you're 85!" In a related vein, this poster urged, "Hold off taking Social Security until age 70. It's like getting 8% a year on your money, tax-protected." (This article (http://news.morningstar.com/articlenet/article.aspx?id=343180) discusses various Social Security strategies.)
MPodracky has found that it's possible to cut costs by not paying for more financial advice than you need. He wrote, "Review whether you really need to pay a financial advisor the plus/minus 1% (the exact amount depends on one's assets of course) versus just a fee-based advisor for a semiannual tune-up. When I retired, I started to manage my own investments--primarily Vanguard/T Rowe Price mutual funds--and my annual expense is now 0.25%. Previously, it was 1.27% when I had the advisor fee plus the fee the mutual fund itself charged. A 1.0% savings compounded over 25-30 years of retirement adds up to quite a sum."
Posters also shared tips for saving on taxes during retirement.
Dundeee's strategy involves "bunching" itemized deductions to take advantage of them in certain years. "When my spouse retired and we downsized to a patio home, we paid off mortgage from sale of older house. The first year of having to take a standard deduction was a shocker after itemizing all my life. I now work closely with my CPA and 'cluster' almost all deductible expenses every other year--charities, church, CPA, property taxes, investment subscriptions, Morningstar, a portion of long-term care premiums, and so on."
ThePrune advocated for doing your own taxes by hand. "You save on yearly tax prep software, and learn a lot more about the tax code. (In my own case, learning how to perform longer range tax planning has shown me how to save big money through an intelligent retirement plan withdrawal strategy.)"
Yellowdog, meanwhile, urged retirees to pay close attention to where they're drawing income from during retirement, noting that paying attention to withdrawals can reduce one's tax load. "To optimize current federal income tax policy, manage retirement income sources to maintain a 15% tax bracket. This will limit your exposure to federal capital gains and dividend taxes."
Love and Marriage
Posters also noted that family matters play a role in making their finances work, both in retirement and in the years leading up to it.
Jakecalgary coolly advised, "Marry someone that is not a big spender and do lots of due diligence before marrying. I think of dating using my investment philosophy, wide moat at a discount, with lots of margin of safety. You can save all your life, one divorce can erase all that saving effort."
Mwleach concurred about the importance of finding a partner who's a good financial match as well as a love match. "Having a relatively frugal spouse really helps. (I am fortunate in that regard.)"
Paying for college--or rather, not overpaying for college--was top-of-mind for some posters.
BAXTER shared this guidance, noting that it had worked well for his own family: "Let your children know early that you will provide support for them for college at any in-state supported institution of their choice. No wandering around the country letting an immature 18-year-old decide where he/she wants to spread their wings at your retirement and mental health expense."
Guyclifton, meanwhile, advised the "sink or swim" method. "Let the kids pay their own way through college. They will do much better if it's on their dime."
Posters also weighed in on how to deal with adult children with money troubles.
Stockpicker197 noted that helping children with their finances can be a slippery, retirement-impairing slope, writing, "Tell your older children to take a hike when they come begging for money. I have a 40-year-old son and a 33-year-old daughter who think I owe to support them for the rest of their lives. Older children are like stray cats. Once you feed them, they will continue coming back for more and more."
When dealing with adult children in need of financial help, mwleach advised, "Upon retirement, have a conversation with your kids (and, if necessary, grandkids) to gently inform them that, as you are now retired, there will be no ongoing EOC (Economic Outpatient Care). Then stick with that decision. That does not mean you can't spend some money on the family from time to time (trips are good, by the way), nor that you cannot help out in true emergencies. You have to set limits and learn how to tactfully say 'no;' if you don't, EOC is likely to negatively affect your retirement picture over time in my opinion--no matter how large your portfolio."
FidlStix, meanwhile, argued that the benefits of having children can't readily be quantified, writing, "Our kids are our greatest asset in terms of the joy they bring us as they solidify their fledgling careers and start families."
'Live Frugally with Focused Indulgences'
Although posters were eager to share cost-saving tips, many were also quick to acknowledge that sticking to an in-retirement budget is a balancing act: Even though you can be scrupulous about what you spend on a day-to-day basis, a periodic splurge is important, too. For many posters, travel was cited as a splurge that delivers an impact; the complete thread includes some tips for cutting costs while also venturing to some once-in-a-lifetime locales.
WSoxIggy69AATim advised, "Be as frugal as you can possibly tolerate on (all) recurring expenses. It's always seemed to me that the marginal enjoyment or satisfaction gained from many/most recurring expenses beyond some relatively modest level often 'decays' relatively quickly. There seems to be a natural inclination to become acclimated to the kinds of benefits provided by recurring expenses. On the other hand, it seems to me that the personal return on astutely selected occasional splurges can often be much more cost-effective."
Dundeee summed it up: "I read an article recently where someone concisely characterized how best to retire: Live frugally with focused indulgences."
Finally, BMWLover shared this wise post: "I'll take the advice of my dad. He didn't have a lot to retire on and worked part time. The way he managed his money was to plan two good trips a year, usually one in the winter to get to some place warm and then a summer vacation. After that he would figure out how much he had left and would live within his means for the rest of the year. While he didn't live a luxurious lifestyle, he was happy, which is the point of it, isn't it?"
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