I have great respect for my parents. Every time I’ve observed them undertake a new challenge or a transition in life they have always put great thought into how they should proceed. Now that my Dad has been retired for a bit he sent me ten tips for making every penny count in retirement. It’s going to be quite a while before I retire but I thought I’d share his thoughts so that others could benefit from his wisdom.
1. Be debt free.
As a retiree you do have a limited and fixed income that comes in on a monthly basis. Having a mortgage, car payment and credit card debt will drag you down financially. I have read numerous books on money and retirement and one common denominator they all speak about is being debt free. A book that I recommend reading and has helped me the most is “The Total Money Makeover” by Dave Ramsey. Bottom Line: If you are not debt free don’t retire.
2. Federal & State taxes from your retirement check.
Make sure you are deducting the right amount of taxes. I followed the NYS Retirement calculator for federal tax deduction and fell short on the amount needed to deduct. So I did pay a tax penalty and increased my Federal deduction.
Bottom Line: Check with your accountant for how much you need to deduct from you monthly allotment.
3. Living in a State with no income taxes.
States with no Income Taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Many people believe that no state income tax means lower overall taxes, but this is not necessarily true. “In several cases, research shows that the states without an income tax make up the difference with higher rates for property taxes, sales taxes and other tax categories.
Bottom Line: Do your homework; check on your property and local taxes before pulling the trigger and move.
4. Dealing with deferred compensation.
Deferred Comp (403B): If you take any money out of Deferred Comp they withhold 15% up front for Federal Taxes. Keep in mind that additional income will put you in a higher tax bracket. I purchased a new car and did some remodeling in our house; it was more like 20%.
Bottom Line: Put an additional 5%-10% away an anticipation being in a higher tax bracket.
5. When to collect Social security benefits.
I know that I have discussed this issue to death. As far as I am concerned, if your family genes have longevity, you are better off waiting. For example: If you wait until you are 66 will increase the size of your check by one third. A one third increase makes a significant difference in monthly budgeting. However if you need the cash another option is to have your spouse take it at 62 you wait till you are at least 66.
Bottom Line: If you have a serious illness or family history of short life expectancies taking the benefits as soon as you can does make sense.
6. Hotel rooms.
Best time to book a room is 4pm on Sunday. Call the hotel’s local direct line not the 800 number. Don’t ask for reservations speak to the manger on duty directly. He has the authority to negotiate rates.
Bottom Line: Be courteous. I think of myself as a valuable commodity. After all you want to take an unsold room out of inventory.
7. Air Travel.
The perfect way to shop for cheap air fare is 3pm Eastern time on a Tuesday says Rick Seaney, CEO of www.FareCompare.com. Monday nights is when the major airlines announce sales. This triggers other airlines to match that sale on Tuesday. Keep in mind luggage fees can be $15-25 for your 1st bag.
Bottom Line: The earlier you can book your travel the better and flexibility with travel days always will work in your favor when exploring prices.
8. Spending more than you earn: This may seem like an obvious error to avoid, but with U.S. consumer debt reaching $2.45 trillion at the end of 2009, according to the Federal Reserve, it may not be obvious enough. Keeping an ongoing personal budget will help you to track what’s coming in and what’s going out.
Bottom Line: Make sure the amount coming in is higher than the amount going out.
9. Which is the cheaper climate.
Where is it cheaper to live, a warm or cold climate? Experts say, is that both heating and cooling your home take large amounts of energy, more than we use for any other appliance. But according to researchers at National Geographic’s The Green Guide, you will probably consume more energy heating your home than cooling it. Think about it. When it’s 0 degrees outside, you’ve got to raise the indoor thermometer to 70 degrees. In 110-degree weather, you need to change the temperature by only 40 degrees to achieve the same comfort level. Since air-conditioning is inherently more efficient than heating, it is a little cheaper to live in a warmer climate.
Bottom Line: It takes less energy to cool a given space by 1 degree than to heat it by the same amount.
10. Long Term Care Insurance
I struggled with this one. You think Long Term Care Insurance is prepaid hell? See what it does to a parent or loved one’s life savings and assets if they don’t have it. So do I need Long term care insurance? After doing a lot of home work approx. 70% of us will be in a Long Term Care Facility unless you plan on moving in with your children.
All depending what level of care that is needed it can cost between $50,000 – $75,000 and more a year. O.K. some of you are saying I will go to a State run Facility and pay nothing. One thing that I am sure about is that with some extra money, things can go a little smother for you. Medicare coverage of skilled nursing care is limited to 100-day benefit periods and requires at least three days of hospitalization before being admitted to a home.
Cost: At age 60 the approx. cost of LTC insurance is appox. $3,000.00 per couple at age 70 the cost is double.
Do the math, if you purchase a policy at $1500 per year at 60 yrs. old X 30 years = $45,000. The policy I have will provide 50,000 per year for 5 yrs. = $250,000 with a built in inflation.
Bottom Line: It made sense to me purchase a policy sooner rather than later.
If you have any other thoughts or tips feel free to leave them here, I’m sure my dad would like to know what you think!
After our morning services Joe came back with just a one hour break and enthusiastically taught The Financial Learning Experience. In the 8 year history of our church we have never had a response to a class a large as this one! Let me sum it up in one word. POWERFUL. Joe has a bottomless pit of energy, and he taught the class with just as much excitement as he had when speaking during our three worship services. He taught some strategies to attack debt, demonstrated the family budgeting process, and then helped everyone calculate their financial need for retirement. If you ever need help with this sort of thing at your church Joe would be the first guy I would recommend.
The entire day I had people sharing with me that this was the best series on finances that our church has ever done. In addition, I had people also telling me that The Financial Learning Experience was the best class we have ever offered.
If you are interested, everything that was shared this weekend can be found in Joe’s book: I Was Broke, Now I’m Not .
If you were a part of the class and you are looking for Joe’s free tools to help you manage your personal finances, you can find them by clicking here.
Click here to listen to Joe’s story when he spoke at CCV.
- I maintain a strict lunch budget – If I have sushi (my favorite) this is the only meal out I have that week.
- Don’t buy coffee – I try so hard not to buy coffee out. Most days I succeed and make it only in the office or at home. This saves me hundreds of dollars per year since I would often buy coffee daily when we were both able to work outside the home.
- Sell something to buy something – I love new tech! When a new gadget comes out that I want, I sell a bunch of old gadgets to buy it.
- Refuse to buy on credit – We pay cash for everything. I use my debit card as much as possible so I can track every penny I spend in Quicken.
- Invite friends over instead of going out – we love playing board games so we will often spend hours with friends enjoying their company at out home.
For 100 more tips on saving cash click here and visit The Simple Dollar.
As a frugal dad I am always looking for ways to save money. Especially with the price of gas fluctuating so much these days. Forbes Autos recently interviewed a guy named Wayne Gerdes who can pull 84 miles per gallon out of a standard Ford Ranger pickup. I found it interesting so I thought I would pass on Wayne’s tips (if you are interested in more click on the above link):
- Inflate your tires to their maximum recommended pressure. High pressure in tires enables you to accelerate with less gas and coast farther. It also enhances turn-in capability and facilitates better tire longevity.
- Use the lowest weight oil recommended for your vehicle. Low-weight oil is easier to pump through an engine, and the engine components will interact more efficiently.
- Change your air filter at least once a year. Engines work harder when they have to pull air through a dirty filter.
- Drive as if you hypothetically do not have brakes. Gerdes says that drivers usually burn fuel to get up to an excessive speed, then throw that energy away by slamming on the brakes at a stop sign or red light.
- Don’t use cruise control or worry about keeping a constant speed — instead, be concerned with not changing the load on your engine. In other words, it’s acceptable to slow down as you go up a hill, as long as your engine continues to work only as hard as it did when you were on level ground. You’ll make up the loss in speed on the other side of the hill due to the assistance of gravity.
- Don’t drive above the speed limit. The faster you go, the more you increase drag on the car from the wind, consuming more fuel.
- Turn your engine off if you are idling for more than 10 seconds. Idling is one of the worst fuel wasters.
- Practice “potential parking.” First, seek out the highest point of a parking lot and, if parking lot topography permits, coast uphill into a spot where you can face out, allowing you to coast right out when you depart.
- Instead of relying on your fuel gauge, odometer and your long division skills, install a ScanGauge (scanguage.com) automotive computer that calculates and displays your fuel consumption.
- Turn off the A/C. Running a mechanical and electrical accessory like air conditioning steals fuel from the engine and decreases fuel economy. Operating the air conditioner on its maximum setting can reduce miles per gallon by up to 25 percent.
About once every three months since I was eight, I would spend a day keeping a detailed chronology of all of the stuff I did on that day. I kept a little notebook with me, noted things throughout the day, and would write it all out in great detail that evening in a notebook that I still use for this project. It is really fascinating to look at this notebook, as it has snapshots of my life dating back to third grade.
Recently, I looked at this journal over a period of time to see if I could notice how my spending changed and also whether there were any routines to my life that I could identify that were costing me money. Interestingly, I noticed that the one consistent routine throughout my adult life that cost me money was my morning routine. Here’s how it would go for the last ten years or so:
- 5:30 AM – wake up, morning hygiene, check my email
- 6:30 AM – leave for work
- 6:45 AM – stop for breakfast – cost: $8
- 7:10 AM – stop at a newsstand for the New York Times – cost: $1
- 7:30 AM – grab a cup of coffee before heading in – cost: $3
- 9:30 AM – morning coffee break – cost: $3
Let’s stop and look at this for a moment. That’s fifteen dollars a day blown on a morning routine. Let’s say I did this every day for forty eight workweeks a year for ten years:
- $75 a week
- $300 a month
- $3,600 a year
- $36,000 for ten years
This simple morning routine, one that could easily be analyzed and broken down, has cost me roughly $36,000 over my adult life – enough to write a check for two top-notch automobiles or make a 20% down payment on a $180,000 home, just so I can enjoy breakfast and drink coffee.
Over the last year, I’ve changed this routine quite a bit. Here’s how it now looks:
- 5:30 AM – wake up, morning hygiene, check my email
- 6:25 AM – drop a homemade breakfast burrito or breakfast sandwich into the microwave – cost: $0.50
- 6:28 AM – food is finished
- 6:30 AM – leave for work, drop son off at daycare, eat sandwich on the road
- 6:45 AM – arrive at work 45 minutes early, start up small coffee pot on my desk – cost: $0.25
- 6:50 AM – browse the NY Times website and a few others; print off any articles I may want to read
- 7:00 AM – get started on my day – I shifted my day to start half an hour earlier
- 9:00 AM – morning coffee break, drinking coffee I already made and reading articles I printed
Not only did I cut my morning routine spending down from about $15 a day to about $1 a day, I also freed up some significant morning time, enough so that I was able to alter my work schedule to start a half-hour earlier and thus leave a half-hour earlier (on average). Not only do I save money, but now my evenings seem longer, giving me more time to spend with my family, which is what is really important to me.
Spend some time looking at your regular routines. Write down a detailed rundown of a few random days in your life, then compare them and see what patterns you can find, especially those that cost money or waste time. You’ll be shocked at what you might find.