6 Ways to Cut Your Expenses in Retirement

By Wendy Connick Markets Fool.com

Once you're ready to retire, you may find that you've got enough saved up to provide a generous income for the rest of your life. Or, you may realize that your projected income just won't cover everything you want to do during your retirement. In the latter case, trimming down your expenses a bit may make enough of a difference so that your income will be sufficient for your needs (hopefully with enough left over to allow you to have some fun).

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1. Reduce investment expenses

Ideally most retirees are deriving a large percentage of their income comes from retirement savings accounts such as IRAs and 401(k)s. These funds are typically invested in stocks, bonds, and similar assets. However, depending on the specific asset you choose, you may also be shelling out a significant amount of money in management fees and similar charges every year. If you have a standard, non-retirement brokerage account, you may have fees from the brokerage firm as well as from the investments themselves. If your investments are making 7% in returns a year and you're paying 4% in fees, then you're really only making 3% returns-and you're losing over half your potential profit in fees alone. Get ahold of the prospectuses for all your investments, and find out how much they're costing you in fees. If you own shares of, say, a mutual fund that charges high fees, get rid of those shares and put the money in a no-load, low fee fund instead. Similarly, if your brokerage charges high management fees, consider moving to a discount broker. One way to reduce fees is to stick with index funds, which typically charge 0.2% in management fees; in comparison, actively managed mutual funds charge an average of 1.6%. Look for mutual funds that mirror the features of an index fundto minimize your expenses.

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2. Get rid of debt

Any debt you carry in retirement will make a major dent in your income. For example, consider the difference in your finances if you're making a monthly mortgage payment versus owning your house outright. That's several hundred to several thousand dollars a month you wouldn't need to pay every month, giving you a lot more financial leeway. Credit card debt is the worst offender and should be your top priority to pay off, since it typically is paired with brutally high interest rates; however, any debt you carry siphons away part of your income.

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3. Practice good tax management

During your career, your employer likely withheld whatever taxes you needed to pay from your paycheck. You never really needed to think about taxes except when sitting down to prepare your annual return. As a retiree, you're in a very different situation. Some of your income will definitely be taxable, such as distributions from tax-deferred retirement accounts. Other income may or may not be taxable, such as Social Security benefits. Still other income will be taxable but at a different rate from your income tax, such as capital gains on investments. If you have several potential income sources, managing how and when you draw on those income sources can significantly reduce how much you'll be required to pay each year in taxes. Consulting with a tax professional and coming up with a plan can easily save you thousands of dollars in taxes.

4. Maximize senior discounts

You've survived to retirement age, and you might as well take advantage of its benefits. A surprising number of vendors offer senior discounts of one kind or another, although you may have to do some research to identify these discounts. For example, the supermarket where I shop has a 10% senior discount, but only on the first Tuesday of every month. If stores in your area have similar discount programs, you might not find out about them unless you ask. And every dollar you save by using senior discounts gives you a dollar that you can spend on something else.

5. Downsize your living situation

If you own your own home, you may be able to tap into its equity to help fund your retirement. A reverse mortgage is one option that would give you income for life, although there's a significant drawback: you wouldn't be able to leave your house to your heirs. There are also other potential pitfalls.You could also simply sell your house, move into a smaller house or apartment, and use the funds from the sale to generate income. If you live in an expensive part of the country and are willing to relocate, consider moving to a cheaper locale to stretch your money further.

6. Focus on free fun

There are plenty of activities that you can enjoy free of charge or for a very small fee. This is particularly true for seniors living in good-sized cities, where organized activities abound. But no matter where you live, you likely have access to resources such as public libraries, parks, free-to-cheap theatricals put on by amateur groups, county fairs, free classes offered at senior centers, and so on. There's plenty of fun to be had if you just take a look around. And who knows, you may end up making fabulous new friends or taking up a whole new hobby you never thought to try. Now that's a great way to live it up in retirement.

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