Investors are rightfully concerned with saving and investing enough money to provide a comfortable retirement. But just as important is keeping a close eye on the spending side. Here are seven retirement money wasters that can quickly drain even a well-stocked retirement portfolio.
1. Not shopping around for Medicare supplemental policies. Health care often becomes an even larger expense during your retirement years, and a lot of that money is spent needlessly. Medigap policies will pay for some of the cost-sharing requirements traditional Medicare doesn't cover. If you don't buy one, you could be forced to pay for 20 percent of the cost of many services covered by Medicare with no out-of-pocket limit. However, there can be wide variations in premiums for Medicare supplements, and it's important to shop around for the lowest cost plan that meets your needs. Look at a variety of Medicare supplemental policies and see how much you can save by switching to a new plan. You can also shop for lower cost Medicare Part D prescription drug policies each year.
2. Making restaurant meals a daily occurrence. If you're looking to extend your life of leisure to all quarters of your life, you might get carried away eating meals outside the home. It's like having a private chef, but without the cost of having to maintain one. But eating out all the time is a huge expense. If you eat dinner out every day, even at a relatively modest cost of $20 per meal, you will spend $7,300 paying for a year's worth of dinners. But there are lots of ways for retirees to save money on food. You could plan to eat most of your meals at home, use senior citizen discounts, take advantage of early bird specials and order from the light fare menu. It all adds up.
3. Having too much insurance coverage. Once you retire, you won't need nearly as much life insurance. When you don't have kids at home or a large mortgage you can switch to a small term life policy or a burial insurance plan. If you have a large amount of financial assets, you may not need life insurance at all. "I recommend my clients do an annual insurance audit. Seniors who purchased permanent life insurance policies when they were younger have probably built up cash value over the years," says Jude Wilson, founder and chief financial strategist of Wilson Group Financial. "If structured properly, that cash value could be used to pay future premiums. This in turn frees up more money in your budget." Also take a look at your deductibles. On both home and auto insurance, increasing your deductibles can result in a big reduction in your premiums. Don't be afraid to increase your deductible from say, $500 to $1,000. If you have the cash to cover it, you won't have any greater risk.
4. Living in more house than you need. If you're still living in the same four-bedroom spread you raised your family in, you're almost certainly paying too much for housing. Trade down to a smaller, more comfortable residence. That will not only free up more cash for retirement savings, but will probably lower your utility and maintenance costs too.
5. Not downsizing your communications. A big expense today is communications, including Internet, cable TV and a cell phone. As a retiree, you probably don't need the same plans that you had when you were working. For example, you may not need high-speed Internet anymore. Slower speeds will probably get the job done at a much cheaper price. You should also get rid of your landline telephone, if you still have one. For cell phones, pay only for the services that you actually plan to use. As for cable or satellite TV, many people are starting to cut the cord in favor of streaming services like Netflix and Hulu.
6. Owning a new car. One of the worst investments you can make is a new car. New cars depreciate significantly in the first two years you own them. Used cars are a better deal. If you buy a car that's two years old, you can probably get it for significantly less money than buying new. And since you're retired and no longer need to commute, you won't spend as much time in your car anyway.
7. Carrying credit card balances. When you retire, one of the first things you need to purge from your finances is debt. This is particularly true when it comes to credit cards. If you carry balances, you'll be paying interest on everything you purchase. It has the effect of raising the price of everything you buy, especially if you carry open balances for many months. Never buy anything on a credit card that you can't pay in full within the next 30 days. Credit card debt should be a relic from your working days, and one that you want to get rid of completely.
Saving money for retirement is important, but so is holding on to it. Not wasting money is a tool that will help your savings last the rest of your life.
Jeff Rose is a certified financial planner, U.S. combat veteran and the founder of GoodFinancialCents.com.
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