A recent MSN Money article reviews "…10 ways we save money in retirement, without adversely affecting our lifestyle." Some of the article's areas to cut costs like clothing, commuting, and kids, I wholeheartedly agree with. However, the retirement money-saving situation isn't as cut and dry for everyone anymore. And with more and more people like me working from home, some costs in retirement might not go down as much as we think or hope.
Working from home
The article on MSN Money mentions things like transportation and commuter costs, clothing costs, a vehicle, and insurance costs related to working or getting to and from a job. However, what about people like me who work from home?
Having downsized by one vehicle, we already save at least $3,000 or even $4,000 in work-related transportation costs compared to when I used to work outside the home, and those savings won't increase as I move into retirement, so they're already factored into my retirement cost cuts. Of course we'll save on fuel for my wife's commute, but that will only equate to about $150 a month, which I'll admit is better than nothing but not as might as we might reduce this budget line should we both be working outside the home.
Debt and living situation
Many cite paying off debt or a home mortgage as a great way to cut costs moving forward into retirement. However, we've already paid off our home and we remain debt free by doing things like paying off our credit card each month and keeping an emergency fund on hand.
When the housing market collapsed, we made a decision to sell our home. In the process, we took a heavy financial hit, but we recouped some of this loss by taking our leftover equity and downsizing significantly so that we could buy outright a smaller home at about half the size and half the price of our previous home. In this way, we've prepped ourselves for a mortgage-free, and hopefully a debt-free retirement. But unlike some people, we won't be ditching that $1,500 monthly mortgage payment or the $400 car payment as we head into our golden years. And since we've already downsized, there isn't much fat to cut there either.
Forecasting and planning
So how do I know that my retirement costs-cutting options might not be as good as some financial experts might think? Well, I've done several things over the years to clear the picture of the future that my financial crystal ball provides.
There are a few key elements involved in this process.
- Expense Tracking: Whether you do it by way of credit card statements, online tracking systems, a spreadsheet (what I do), or pen and paper, knowing how much we spend, where and when is critical to helping me know how our costs might change in retirement as opposed to where they are now. It would likely be harder for me to know if transportation, debt, home, or similar costs would increase or decease in retirement if I don't know what they are right now and what they have been in the past.
- Expense Breakdowns: I take expense tracking a step further though and break certain costs down into particular categories. From home repair and maintenance costs, to home utilities, vacation, child costs, and similar areas, I can get an even better idea of where we spend on larger cost categories and how these areas -- while not eliminated completely -- could at least be affected as we move into retirement.
- Budgeting and Forecasting: I do a monthly budget, but I also forecast it out for the entire year. I also do this with my income tracking so that I can project an annual income in advance based upon previous years' earnings and future earnings based upon current business levels.
By using these tools, while I might not be able to reduce our expenses as much as someone working outside the home, I at least have a good understanding of the balance between income and expenses and am able to find ways to cut costs -- even if they are somewhat smaller amounts -- nonetheless.
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The author is not a licensed financial professional. Calculations have not been verified by a professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
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