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Expenses associated with work might fall, but early retirees face temptations everywhere, whether in the form of travel, golf, club memberships, or more socializing.
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updated 2/14/2010 1:16:10 PM ET 2010-02-14T18:16:10

Workers approaching retirement are often told by experts that they will need only about 80 percent of their income after they stop working to maintain the same lifestyle.

After all, expenses fall when retirees don't need to dry-clean their work wardrobe and commute every day. And they have more time to shop for deals and handle house and yard work themselves. Presumably, the children are out of the nest or have their own financial flight plan.

The problem is that many retirees soon discover the 80 percent rule of thumb doesn't work. "I'm finding that to be unrealistic with today's retirees," says James R. Miller, president of Woodward Financial Advisors in Chapel Hill, N.C. "It is more like 100 percent."

Expenses associated with work might fall, but early retirees face temptations everywhere, whether in the form of travel, golf, club memberships, or more socializing.

A regular paycheck — and the obligation to save much of it each month — often constrains budgets. By contrast, the newly retired can dip into a nest egg for the first time, and "for some, it's akin to winning the lottery," says Ken Eaton, a principal at financial planning firm Stepp & Rothwell in Overland Park, Kan. Without the "artificial boundary" of a paycheck, "they can easily spend a lot more than their portfolio can sustain," he says.

Bloomberg BusinessWeek received tips from more than two dozen financial advisers on how to spend less in retirement.

1. Adjust your health insurance
Through the length of a retirement, out-of-pocket health care expenses can add up to hundreds of thousands of dollars. Unfortunately, health care can be the toughest kind of spending to do without.

Because most health care spending happens later in retirement, one option is to start out with a cheaper health policy. "Healthy people can choose lower-premium comprehensive — but still reasonably good — coverage in their early years, saving health care dollars for later years," says David Armes of Dover Financial Planning in Long Beach, Calif.

Retirees should look at insurance options very carefully. Depending on your health problems and the medications you take, one policy could be much less expensive than the others, says Eve Kaplan, chief executive of Kaplan Financial Advisors in Berkeley Heights, N.J.

2. Flexible travel
Retirees have more time and a greater inclination to take trips. But they also can travel in the off-season or at odd times. "Flexibility might allow retirees to take advantage of more off-season specials or last-minute deals," says Brenda Knox of Financial Elements in Rolling Meadows, Ill.

3. Cut the purse strings
Several financial planners noted how often their clients use precious retirement savings to help adult children. Without a paycheck coming in to their parents, sons and daughters may need to fend for themselves.

Kaplan advises charging adult children reasonable rent or board expenses if they're living with you.

4. Curb your cars
Can your household manage sharing one automobile? One fewer car in the garage would slash payouts for insurance, car payments, and maintenance.

Without a daily commute, you're likely to put less strain on your cars. So consider waiting longer before you buy a new set of wheels.

5. Use cash
Financial planners offer many tips for essentially tricking yourself into spending less. They include waiting periods for major purchases and automatically putting parts of your portfolio off limits for purchases. The idea is that, by artificially constraining your buying abilities, you are forced to spend only on your true priorities.

Another popular trick, planners say, is to use cash whenever possible. Buying with a credit card or debit card can often be too easy, says Paul A. LaViola of RTD Financial Advisors in Philadelphia. "It feels more real — even painful — when you use cash," LaViola says.

6. Watch those investment fees
Investing is one area where customers get less by paying more.

High fund expenses and investment fees can eat into portfolios, but there is no evidence that higher costs translate into better performance.

Consider a typical managed mutual fund with an expense ratio of 1.4%, and compare it to an exchange-traded fund, or ETF, with an expense ratio of 0.09%, says Kevin Brosious, president of Wealth Management in Allentown, Pa. A $500,000 investment would save $6,550 per year in the lower-cost option.

7. Put food spending on a diet
There is a reason early-bird specials at restaurants are so popular with retirees: An early dinner can be a lot cheaper. Other strategies recommended for saving money on food include cooking at home more and going to nice restaurants for lunch rather than dinner.

8. Seek out freebies and discounts
Discounts for seniors abound, including reduced prices on club memberships and a variety of offers through organizations like AARP. Retirement may also allow more time for coupon-clipping. Public libraries are a good alternative to buying books or movies. In the Western U.S., national parks remain a cheap vacation option.

9. Adjust your insurance
Insurance needs can change dramatically for people moving from the work force to retirement. For example, planners suggest renegotiating for lower car insurance rates if you're driving much less without a daily commute.

Many retirees no longer need to pay for disability insurance, which is designed to replace income lost if you were to be injured. It might also make sense to reduce your life insurance coverage. The death of a major breadwinner won't have the same impact when you're retired. Also, "if life insurance is sufficient, then restructure your policy so that dividends pay future premiums," says Grant W. Moore of Savant Capital Management in Rockford, Ill.

10. Downsize your home
Housing expenses are the largest item in most families' budgets. So, moving to a smaller, cheaper home is a frequent suggestion for cutting costs.

Many clients who have mortgage debt do so because they own more than one home, says Michael Kalscheur of Castle Wealth Advisors in Indianapolis. "We encourage them to take a hard look at where they will actually spend the majority of their time," he says. Retirees can sell one home and choose to rent or use time-shares in that location.

11. Move to a cheaper locale
Certain parts of the country are much less expensive than others. Relocating can lower both your cost of living and your tax bill, financial advisers say. If you're splitting time between two states, consider switching your primary residence to the state where taxes are lower.

12. Refinance your mortgage
Many retirement experts suggest reducing your debt load as much as possible while you're still working. But, if you've retired and you still hold a mortgage, it might make sense to refinance it, especially with interest rates remaining near historic lows. By pushing your home debt out over a longer loan, you can lower your monthly payment. "This will decrease your cash outflow during your lifetime," Moore says. "After all, what's the point in paying off your house just in time to die?"

13. Don't wait to sell your house
Many retirees are choosing to wait out the downturn in the housing market. Rather than downsizing or moving now, they're hoping to wait a few years and sell when home prices bounce back.

That might be a costly mistake. There is no guarantee the housing market will bounce back quickly. In the meantime, retirees often must pay higher maintenance and property taxes on their existing homes. Finally, don't forget that you can also take advantage of the depressed market when you buy your next home.

"If you are a buyer, your new home will also be less expensive," says Tom Fredrickson, of Altfest Personal Wealth Management in New York. "And the overhead of the more expensive home will continue every year, even as the real estate market may take years to mend while you wait for a 'better' time to sell."

14. Do a dry run on your new spending plan
A new monthly budget can take a while to adjust to, so several financial advisers tell their clients to adopt a new spending regimen as soon as possible.

David H. Lamp, of BBJS Financial Advisors in Seattle, tells clients to live on their "hypothetical retirement spending plan" for a year before retiring. "If they can't live on the plan while earning a living, what makes them think they can live on it with no income?" he says. If clients can't adjust, they may need to delay retirement in order to save more.

15. Get a handle on monthly expenses
If you're trying to save money, it's important to carefully track your monthly expenses. You may be surprised by where the money is going: Oft-cited cash guzzlers include cell-phone plans, cable and Internet bills, club memberships, and landscaping and cleaning costs. All can be adjusted if necessary.

Copyright © 2012 Bloomberg L.P.All rights reserved.

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