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How to Cut Costs in Retirement

Get your retirement on track by trimming expenses on housing, day-to-day expenditures, travel and leisure, and financial services

Christine Benz 21 January, 2013 | 5:55PM

Finding success in retirement is a matter of trade-offs. Some pre-retirees will say that they'd like to have every bit as much, if not more, money in retirement as they had while they were working, even if it means they have to work longer or economise more in advance. Ticking off items on their bucket lists is a key goal, and hiking in the Himalayas and playing golf at St Andrews don't come cheaply.

If you're nearing retirement and you don't have as much saved as you had hoped, working longer and continuing to sock money away are key ways to help bridge the shortfall

Other pre-retirees are comfortable with a different type of trade-off. They, too, would like a good quality of life in retirement, but don't mind economising a bit in their later years, especially if it means they can be retired longer. They consider time to be the true luxury that accompanies retirement. To get there, they're willing to downsize their homes, hang on to their old cars and entertain at home rather than enjoying lavish meals out.

Many others will balance the above two styles, economising on some items but considering other splurges sacrosanct. I've known plenty of retirees who weren't wealthy but still managed to travel to fascinating places and contribute to charitable organisations that mirrored their values. They made room in their budgets for these priorities by saving on other line items.

If you're nearing retirement and you don't have as much saved as you had hoped, working longer and continuing to sock money away are key ways to help bridge the shortfall. But you might also take heart in knowing that your successful retirement will depend on identifying your own trade-offs—areas where you're able to trim costs in exchange for what you really want, which might be the ability to retire sooner.

Here are some of the key ways in which retirees might be able to cut their costs.

Make Changes on the Home Front
Moving is a pain in the neck, but one of the easiest ways to make retirement more affordable is to consider moving to a less-expensive residence, usually somewhere smaller. If you own your home, you might be able to reduce your mortgage amount or unlock equity by downsizing to a smaller place; you're also likely to cut your council tax, maintenance costs and utility bills. Of course, downsizing carries its own trade-offs; several Morrningstar users recently cited the ability to shed unnecessary objects as one of the key side benefits of downsizing, though many also noted that they didn't plan to downsize because they had never "upsized" in the first place.

In a related vein, some retirees and pre-retirees on our websites have noted that relocating to cheaper geographic locales had helped them dramatically reduce their in-retirement cost loads. Not only do housing costs vary significantly by geography, but so do tax burdens. Note that moving to a foreign country with low costs may be an option but there are also some trade-offs that accompany retirement overseas.

Trim Day-to-Day Expenses
Making changes to your housing situation is one of the biggest-ticket ways to cut your in-retirement costs, but it's also the one that will require the most dramatic lifestyle adjustment. For those who aren't prepared to take that plunge, there are a host of simple ways to reduce expenses on everything from food to utilities to personal care—small changes that will add up over time.

Slice Travel and Leisure Costs
Retirees have something working people don't have, and they have it in abundance: time. But many retirees will also tell you that having more time gives them more opportunities to bust their budgets by overspending. Online alerts and daily deal sites make it particularly easy to save on everything from meals to holidays to skydiving, but there are old-fangled ways to economise on travel and leisure costs, too. 

Watch Your Investment and Other Financial Costs Like a Hawk
The aforementioned tips all relate to lifestyle changes. But if you want to cut your in-retirement expenses without having to change your living habits one little bit, the easiest way to do so is to reduce how much you're paying your financial institutions. Consumers don't typically write cheques for most of these services; instead, their share of expenses is automatically deducted from their balances. That might be convenient, but the end result is that they're usually not particularly sensitive to what they're spending, even though financial-services costs can easily be one of the biggest line items in many retiree households. To boot, higher investment costs are inversely related to investment performance, making mutual funds and exchange-traded funds some of the rare consumer products where paying up doesn't typically buy you a better product. 

This article* details some of the easiest tweaks you can make to reduce your day-to-day outlay and users also offered terrific tips of their own in the Comments field below the article.

This article* amalgamates money-saving tips on everything from cultural and sporting events to travel, entertaining and dining out.

This article* provides 50 tips for cutting your investment, insurance and banking costs.

*Please note that these articles are published on our US sister site, Morningstar.com.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author Christine Benz

Christine Benz  is director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances.