• Robert Ryerson

5 Tips for Making and Saving Money in Retirement

Updated: May 26


Saving for retirement is an ongoing process that should begin as soon as you enter the workforce. The consensus among most financial advisors and wealth planners is that a person's retirement income should be about 80 percent of their annual income in their final working year prior to retirement. This means individuals who made $60,000 the year before they retired should have enough saved so that they can comfortably spend $48,000 per year. Assuming a retirement age of 65 and life expectancy of 90, workers in the aforementioned position should have at least $1.68 million saved or accumulated by age 65.

Yet, unrealistic plans and retirement expectations generally don't align with workers' savings habits and practices over time. A study conducted by the Insured Retirement Institute in 2021 found that more than half of all Americans 40 and older have less than $50,000 saved for retirement. About one-third of all survey participants said they put aside less than 5 percent of their income for retirement. Workers, however, should prioritize savings, as many won't have access to pensions. Younger workers may also face the prospect of a greatly reduced or even missing Social Security benefit, as the program faces large demographic problems starting shortly.

Fortunately, there are several ways that workers with a retirement savings shortfall can still earn and save money when they stop working. Below are five suggestions to stretch your retirement savings.

Take out a Reverse Mortgage

A reverse mortgage is a good option for some homeowners who might be in immediate need of cash to cover bills and day-to-day expenses. However, it's best to prolong or avoid borrowing against home equity if possible. For starters, taking out a reverse mortgage usually reduces the value of any inheritance from the house being sold when it is passed won to heir, because the reverse mortgage loan balance continues to accrue over time. In addition, borrowers run the risk of outliving the mortgage proceeds, especially if delivered in the form of a lump sum. Reverse mortgage payments can also be received through a line of credit, equal monthly payments (with or without a line of credit), and term payments (with or without a line of credit).

Homeowners must be at least 62 years old to apply for a reverse mortgage. These are essentially loans in which the homeowner utilizes the trapped equity in their house by borrowing against the value of the home. They are usually federally insured and not payable until the borrower sells the home or dies. Federal regulations also protect the borrower and their estate if the loan balance exceeds the home's value, which can happen as a result of a decrease in the property's market value. Any lump sum or monthly payments form a reverse mortgage are received tax free and can help provide a more secure or comfortable retirement. Move Somewhere with a Lower Cost of Living

There are several ways in which retirees can lower their bills and expenses to make their retirement savings last a little longer. Those who would rather avoid borrowing against their home equity can either downsize to a smaller, less expensive home or relocate to an area with a lower cost of living.

According to Wealth Meta, housing in rural areas is roughly 30 percent cheaper than housing in urban centers. Rural homes are also more debt averse. Through an analysis of food, entertainment, education, and other budget items, Wealth Meta contends that rural life is more than 8 percent cheaper than living in urban areas.

Some states are also better to live in than others, especially for retirees looking to save money. Nine states (Alaska, Florida, New Hampshire, Tennessee, Texas, Nevada, South Dakota, Washington, and Wyoming) do not levy income tax. Delaware, meanwhile, has one of the lowest tax burdens in the US with relatively low property, sales, and excise taxes. There is also an increasing trend of Americans retiring overseas, often to a warmer climate location with low expenses, such as Panama, Costa Rica, Mexico, and Ecuador, to name a few.

Freeze or Restrict Property Taxes

Property tax payments can significantly cut into retirement savings. The median property tax payment in some California counties (Alameda, Contra Costa, Marin, and Santa Clara) exceeds $4,000. The state is also one of many that offer property tax relief for seniors. Some states will even freeze all property tax payments for individuals of a specific qualifying age.

Cut Unnecessary Lifestyle Expenses

Many people spend without thinking of the long-term consequences of each purchase. Retirees, in particular, should be cognizant of their day-to-day expenses and examine ways in which they can decrease their expenditures. Going back a few months, start looking for purchases or expenses that can be cut out with minimal impact on life enjoyment. Cooking meals at home on a regular basis, as opposed to dining out several times per week, is an easy way to save money.

Make Use of Senior Discounts and Reward Cards

Many businesses also accommodate seniors by offering age-related discounts on their products or experiences. National parks, movie theaters, golf courses, and even some restaurants offer reduced prices to seniors. While this might not seem like much, these savings can add up over the course of retirement.

Moreover, some retailers offer rewards cards for returning and valued customers. These cards might offer discounts on select items or provide cash back on certain purchases.