This was originally published on Monday, February 22, 2016, in the Pacific Daily News. Click here to subscribe to the PDN.
Q: I am about to retire in a few years. I have been contributing to my 401(k) and plan on withdrawing Social Security a few years after I retire so I can get the maximum payment from my Social Security. I know retirement is going to be a big change. Do you have any tips on reducing my monthly expenses during retirement?
I commend you. You sound like you are prepared for retirement. Numerous seniors are finding ways to downsize and make more with less income. Many reduce their bills and increase their spending power. These tips may make a big impact on your retirement budget:
Mortgage. If you are within a few years of paying off your mortgage you may want to consider doing so before you retire, especially if your interest rate is higher than the return on your retirement fund. In other words, would it be more beneficial to use that money to pay off your mortgage or to add it to your retirement fund? Which will give you the biggest return?
Downsizing your home. If you own your home you may want to consider downsizing to a smaller home or even to an apartment or condominium. It will be easier to take care of if you have children who are grown and independent. Make sure that the cost of acquiring a new home fits within your budget. If you are going to be purchasing another home, you may have a new mortgage. On the other hand, you can rent your home for extra income or sell it to help purchase the smaller home or add to your nest egg.
Cost of Living. Guam has a high cost of living since almost everything has to be shipped. You may want to consider moving to a state or abroad to where the cost of living is lower. Lower prices on the taxes, food, electricity and other services can help stretch your retirement budget.
Sell a vehicle. If you and your spouse had separate cars for the past years and you are both entering retirement, you may be able to utilize just one car. It would eliminate maintenance and insurance costs and the extra fuel budget.
Retirement penalties. Be sure you understand when you can start withdrawing from your retirement fund. If you withdraw too early or too late, you may be penalized with a hefty fee. As you know, there is a penalty if you withdraw Social Security too soon and you don’t get the full amount. There is also a late enrollment penalty if you postpone signing up for Medicare Parts B and D.
Health care. As we get older, medical care will get more expensive as our bodies start to age. Since we can’t really budget or predict the cost, be sure you have a little wiggle room in your budget. You may want to purchase additional insurance to help cover some of the costs that Medicare doesn’t cover. Ask your physician if there is a generic brand equivalent to medications you are currently taking.
Discounts. There are some perks to maturing. Many stores, restaurants, movie theaters and other service-driven organizations offer a senior discount. Many may not be advertised. It won’t hurt to ask; the worse they can say is “no.”
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.