Reducing Overhead May Be Key To Retirement

There seem to be two approaches to retirement. One is to save and invest enough money during your working years so that you can maintain your same – or better – lifestyle in retirement. The other is to reduce expenses, so that you don’t need as much money in retirement.

Financial services companies obviously favor the first approach, and have spent millions of dollars in advertising to promote aggressive, long-term financial investing for retirement. However, the economic shock of 2008-09 saw many retirement funds take a severe hit.

Having all the money you will ever need is obviously not a bad thing, but it might not be practical for everyone. So, as you approach retirement, why not look for ways in which you can live on less?

Housing

For most families, housing costs are the biggest part of their monthly budget. If you’ve lived in the same house for the last 30 years, it’s probably paid off and, therefore, you have no mortgage. The taxes and utilities are your only housing expenses.

But if you purchased a home in the last 10 years, you are probably making a pretty hefty house payment, even if you have refinanced at a lower rate. Getting rid of that house payment, or reducing it significantly, might give you the breathing room you need in retirement.

Assuming you are able to sell your existing home and walk away with some equity, there are options for lower housing costs, if you are willing to relocate. Many areas of the country, hard hit by the real estate collapse, offer homes that can be purchased for cash, or with a very small monthly mortgage.

US News recently reported on U.S. cities where you are able to purchase homes with a standard down payment and have a monthly mortgage payment of $600 or less. These cities include Phoenix, Las Vegas, San Antonio, Greenville, S.C., Boise, Idaho, Corpus Christi, Tex., Tampa, Columbia, Mo., Tucson, Ariz., and Ft. Myers, Fla.

Those cities are considered among the most desirable places to live in retirement. Obviously, there are other markets where homes can be purchased with a modest monthly payment, or even bought outright with the equity from the sale of your existing home.

At the same time, being able to add to your income in retirement with a part-time job will also help, but it should be something you enjoy, so that it doesn’t seem so much like work.

Health

A recent study published in the Journal of Occupational Health suggests a good non-economic reason to keep working in retirement. Researchers found that people who continued to work part-time or in temporary jobs after retirement had fewer major health problems than those who simply stopped working. They also enjoyed better mental health.

If you have millions of dollars in a retirement account, you don't have to do anything in retirement. But after a rewarding career, doing nothing might not be all it's cracked up to be.

With the average U.S. lifespan now at 78, and people routinely living into their 90s, one of the easiest ways to insure you don’t outlive your assets is to reduce the amount you spend and keep employment income flowing as long as possible.