5 Ways To Reduce How Much You Need To Save For Retirement By $300,000 (or More!)
The Easiest, Most Certain Way To Bridge Your Retirement Savings Gap
Key Ideas
- Reveals a practical way to apply the Rule of 25 to reduce your retirement savings needs.
- Discover how spending less can make your retirement more fulfilling.
- Shows the shockingly simple math behind how to make early retirement a reality quicker.
Saving for retirement is expensive – really expensive.
If your retirement looms large, but your nest egg doesn't, then don't despair.
There are solutions.
Consider this: for every $1,000 reduction in monthly retirement spending, you’ll similarly reduce how much money you need for retirement by roughly $300,000.
The truth is most people find it far easier to live a fulfilling retirement on $1,000 per month less than to figure out how to sock away an additional $300,000 in retirement savings.
Rather than delay your retirement until you reach your savings goals, consider a more creative and efficient solution.
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The “4% Rule” And The “Rule of 25”
Visit any financial planner and you’ll likely learn about the 4% rule.
According to extensive research, most experts agree you can spend somewhere between 3% and 5% (depending on assumptions) of your savings each year during retirement and remain financially secure.
We’ll assume a very middle-of-the-road 4% for this example to keep things simple. (For a thorough analysis of safe withdrawal rates, click here.)
What that means is you need roughly 25 times your annual spending in savings – otherwise known as the “Rule of 25” – to support this 4% spending habit.
Even if you're math-phobic, the implications behind these numbers are very important to your retirement strategy.
Related: 5 Financial Planning Mistakes That Cost You Big-Time (and what to do instead!) Explained in 5 Free Video Lessons
The reason is because it points to a clear and simple path for closing the gap in retirement savings.
For example, if you can figure out how to reduce your retirement budget by just $1,000 per month ($12,000 per year), the rule of 25 says you just reduced how much money you need to retire by a whopping $300,000 ($12,000 * 25 = $300,000).
For most people, spending a little less is a lot easier than figuring out how to save another $300,000, especially if retirement is right around the corner and it means having to work longer than you wanted.
By learning to live simply, you can enjoy financial freedom sooner. The key to retiring successfully on less is to find an appropriate level of spending that suits your needs without sacrificing happiness.
The only limit here is your own creativity. To help get you started, I’ve provided 5 simple strategies to help you find the quickest and easiest path to a financially secure retirement, without sacrificing happiness.
1. Less Is More
It’s easy to save $1,000 per month when you tackle the biggest expense items first.
For example, now that your kids are grown and out of the house, you may find yourself with more square footage than you need. There are many advantages to a smaller home including lower property tax bills, lower maintenance costs, reduced insurance premiums, and fewer headaches to deal with.
By downsizing your home, you can give your retirement savings shortfall a one-two punch by converting home equity into investment savings, while simultaneously reducing expenses.
In addition, if you decide to relocate from the suburbs into the city (for improved cultural and lifestyle activities), you may be able to eliminate the cost of owning one or both of your cars. You can use public transportation or rent a car for occasional trips out of town.
Less is more: less stuff means less hassle and less expense.
This can save considerable money every month when compared to maintenance, repairs, and insurance resulting from ownership.
The principle is “less is more”. Less stuff means less hassle and less expense, which gives you more free time to enjoy your retirement. Apply this principle throughout your life to create a combination of downsizing strategies that should easily save you at least $1,000 per month.
2. Consider Relocation
If reducing isn’t your cup of tea, then consider relocating.
Many foreign countries offer exceptional cultural experiences and substantially lower cost of living. Every year, several magazines and websites provide critical reviews of the “best retirement havens” outside the U.S. based on various criteria.
Do an internet search and make sure you consider factors such as cost of living, healthcare, culture, and more.
For example, a thriving expatriate community exists in Mexico because of its close proximity to the United States. The flights are affordable for holiday visits, and you can drive across the border when needed.
Not only is the cost of living much lower, but the climate is appealing, the infrastructure is more modern than much of Latin America, fresh fruit is in abundance, and you can surround yourself with other expatriates if you choose.
If you want to stay within the U.S., similar online reviews are available showing you the “most affordable retirement destinations” domestically.
Staying in your home country has advantages including proximity to family for the holidays and birthdays, familiar infrastructure and culture, and no regular costs for traveling to visit.
The key principle is that relocating can get you a lot more home for the same money – or get you the same home for a lot less money. Because many people aren’t attached to a specific location, this can be a great solution.
Just do plenty of research before packing your bags. There are many valuable resources on the web to help you find the right place for your retirement needs and budget – any one of which could save you at least $1,000 per month.
3. Full-Time Travel
If your heart is filled with a wanderlust vision of retirement, then you’re in luck. Full-time travel can be surprisingly affordable compared to home ownership.
One possibility is to consider selling your home and living in an RV. Unburdened by the labor and costs of home ownership, you'll be free to travel as much as you like or stay put for months on end.
Getting rid of monthly payments, property taxes, home maintenance, yard care, and homeowners insurance can add up to huge savings.
Additionally, when you travel full-time, your home equity is freed to produce investment income. Your RV does double-duty as a home and mode of travel.
As long as you enjoy staying put instead of driving all the time, then gas costs aren't a problem. You can play golf, fish, and catch up on reading instead. The savings can be dramatic.
Not only that, but many retirees find seasonal employment in national parks and campgrounds that provide additional income and social life. The rest of the year they're free to follow the weather, visit the grand kids, or hop on a plane and see other parts of the world.
It's easy to just put your RV in storage and not have to worry about home security or frozen pipes.
If you think full-time travel sounds expensive, you may be surprised at the savings involved. Many websites discuss the virtues of full-time international travel and how little it costs – far less than a conventional American lifestyle.
The savings involved could easily reduce your costs by $1,000 per month, and the equity could possibly raise your investment income by the same – two for the price of one.
4. Staying Healthy Is A Top Priority
Healthcare costs represent one of the bigger risks to your retirement financial security.
As you age, healthcare will eat up an increasing portion of your budget. Unfortunately, there’s no magic solution to this problem, but all is not lost.
The first line of defense to significantly reduce your healthcare spending is to stay fit and live a healthy, active lifestyle.
Eating low on the food chain is good for your body as well as your budget. Prepackaged and processed foods often come at high prices with lower nutritional value.
Similarly, regular exercise and a low-stress lifestyle can mean fewer trips to the doctor, and fewer prescription medications that can quickly break your budget.
If you already have an existing health problem, then consider the international solution again. Many countries have comparable or superior healthcare to the U.S. at a fraction of the price. Some even offer national health coverage depending on circumstances. Research your country of choice to get all the details.
Again, depending on circumstances, this one strategy can also save you $1,000 per month.
5. When All Else Fails – The Little Things Still Add Up To Big Results
A thrifty shopper can easily save $1,000 a month on things like groceries, gifts, and recreation.
Sure, it takes a little extra care to find the bargains, but as a retiree, you have a huge advantage – a flexible schedule.
You can take advantage of midweek savings on green fees, matinee discounts on movie and theater tickets, and early bird discounts in restaurants.
You can travel off-season for the double advantage of lower costs and fewer crowds.
Try developing the habit of asking for discounts and never paying full price – it can be fun.
For example, don't wait until December to do all your Christmas shopping. Pick up items throughout the year at sale prices and give them at the appropriate time.
Buy your wrapping paper and seasonal trinkets at the after-holiday sales when prices are usually less than half. Or cut out gift expenses altogether by donating your time to charities, giving service in honor of your loved ones.
When filling the pantry, become a grocery store “perimeter shopper.” Avoid the center aisles that are full of sugar, processed foods, and unhealthy snacks. Almost everything you need is around the perimeter of most grocery stores — produce, bread, milk, and meat.
Buying certain items in bulk also saves cash.
When you pick and choose from these and many other money saving strategies, you can easily figure out how to live happily on $1,000 less per month.
Reduce How Much You Need To Retire By $600,000… or more!
Do you want to make a big dent in your retirement savings requirements?
If yes, the process is simple. Just combine several of these cost saving strategies to double-down or triple-down your savings. They'll dramatically reduce how much money you need for retirement.
It’s not hard to imagine a happy lifestyle living out of a motor-home, eating healthy, and enjoying off-season travel and recreation discounts.
Alternatively, you could try living in an exotic location – maybe a low-cost lifestyle somewhere down in South America would suit your tastes.
Conversely, some people find it hard to reduce spending by $1,000 per month because they’re very attached to where and how they live. That’s not a problem because you can achieve the same reduction in savings needs by picking up the equivalent income from a part time or temporary job. The math is the same.
For example, you might enjoy being a campground host in a beautiful national park, or maybe you’re good at taxes and wouldn’t mind working for a few months each year during high tax season when the winter storms are raging.
The point is clear: every $1,000 you reduce in retirement spending (or add in retirement income) equates to roughly $300,000 less that you need in retirement savings.
The key is to get creative and figure out ways to simplify your life so you spend less and reduce stress.
This will slash the amount you need to save so you can retire now with financial security.
Anybody can learn to build a secure retirement -- and you don't need a financial advisor.
My course, Expectancy Wealth Planning, has been called "the best financial education on the internet" and provides all the knowledge you'll ever need to build the life -- and retirement -- of your dreams.
Thanks for the article. You have made saving for retirement seem easier than most people think it is. Also, you have given practical solutions.