Recently, while out shopping at Greenwise Publix, I overheard an odd conversation. On a side note, I made a delicious, fish taco with chipotle sauce for dinner that night. The recipe appeared in a cooking light magazine and it has a kick to it.
While at the counter, the customer before me was negotiating over the price for the fish. She was asking for a discount because of the cost compared to another supermarket. The person behind the counter did give her the price, and then I asked for a ‘me too price reduction’ and the fish for the taco’s became tilapia.
The haggle reminds me of how little we realize we can save …and not outlive… our money during retirement.
There are many ways to save for your retirement. Some ways include maxing out your 401k plan…making sure you contribute up to the company match as that money if effectively free. It is also important to fund after-tax money such as a Roth IRA. Earnings on a Roth IRA– if held for 5 years– is usually tax free.
It is also important to have a rainy day fund, in a bank or money market account. This amount should be 3 times your net monthly salary. There are lots of internet articles about saving for retirement, but there are few about how to save money IN retirement.
The first method to save in your retirement is to maximize your Social Security. It is normal to delay taking Social Security to well beyond full retirement age. This age is normally 65 or 66, depending on your date of birth.
If you take your Social Security prior to that age and are working, your earnings could reduce your Social Security payments by up to 85%. The general rule of thumb is to delay until you need to take Social Security up to age 70, as that is the maximum age that you can delay to gain automatic growth.
Of course if you need the money or are unhealthy you should start taking Social Security.
Social Security is constantly changing, on November 2nd 2015, a new law became effective in 6 months. This new law removes loopholes in the Social Security system. The major loophole allowed one spouse to draw on their spouse’s benefit while they grew their own.
This strategy has been known as “file and restrict”, because you file, but restrict your benefit to half your spouse’s benefit while you grow your own. The spouse whose benefit was drawn upon could either be taking Social Security, or do what is called a “file and suspend”. They would file, but suspend their benefit to a later date.
How this new law affects you depends on what Class you fall in, if you are already drawing your Social Security benefits, than unfortunately, the information below does not apply to you).
Class 1: If you are under the age of 62 by December 31, 2015, then the file and restrict strategy will no longer be available. You will simply choose between your own benefit, or half of your spouse’s benefit, whichever is greater.
Class 2: If you are older than age 66 by May 1, 2016, then you are grandfathered into the old law and will be able to do the file and restrict, but only if the spouse who’s benefit will be drawn on “files and suspends” by April 30, 2016. This is a priority if you have not made this decision.
Class 3: If you are already taking advantage of the file and restrict, or you qualify to do the file and restrict and you do it before April 30, 2016, then you will be allowed to continue.
Class 4: If you are older than age 62 by December 31, 2015, but not yet age 66 by May 1, 2016, then you can file and restrict, but must wait until full retirement age. In addition, the spouse whose record is being drawn upon must be receiving their Social Security benefits. They can’t be doing a file and suspend.
There are several other methods of Saving IN Retirement
Fore example, you can allocate to a more balanced investment model.
As we get older our risk tolerance traditionally changes. The most common change is to avoid the use of the Growth Stocks, such as Apple, Google, Amazon, etc. These stocks do well when the economy is doing well.
However, in times of market turmoil, most people tend to retreat to dividend paying stocks. The biggest risk is not adjusting your portfolio as you get closer to retirement, and then IN retirement.
If you take a distribution every month from your invested retirement, you could create a poor investment return. This is known as reverse dollar-cost average and it can cause you to sell at the absolute WRONG time. You should take your living expenses from a liquid investment during retirement and not force a sale of stock every time you need money.
Another way you can save for and during retirement is by working and SAVING more than you think you will need. For sure, save any bonuses you receive. The goal is to save a larger percentage of your earnings as you get closer to retirement. If you save your bonus, you won’t miss it.
You can also adjust your withdrawal rate throughout retirement, and decrease your withdrawal rate from your investment accounts if they are down. It’s a good idea to have a surplus of cash available to cover your down investment period, so that you can avoid selling the wrong time.
I always recommend to my clients, especially those who are retired, to set a goal of reducing expenses in 18 month periods. It is very hard to make a quick change; new habits take about 30 times of performing before they become permanent. So get started now, and in a year, you will see the fruit of your ‘frugality”.
Make sure, however, that you continue to save and prepare for large expenses, such as Long Term Care, Disability (end of working years), and a potential Death of Spouse. These unforeseen and sometimes unexpected expenses can decimate your savings.
Other Tips and Ideas to reduce your cost of retirement:
1. Discuss with an expert if it makes sense to Pay off your mortgage vs reduce mortgage vs refinance vs. reverse mortgage during retirement. The traditional days of not having a mortgage during retirement for most people are over. Low interest rates coupled with most people having all their monies tied up in either their home or their 401k cause less people paying off their mortgages.
2. Review your plan for your home. Decide if your home will be right for your family ten years from now. If it is too big, downsize.
3. Sell a vehicle or go carless. The rise of Uber has caused a lot of clients to go from 1 car per person to a couple sharing a vehicle.
4. Reduce Investment Fee and move away from high priced mutual funds.
5. When you are retired, don’t cash out your 401(k), roll it to an IRA. This transfer is tax-free and can save you a large tax bite at retirement.
6. Travel for less: Off peak times. Some airlines offer last minute deals, look at their websites.
7. Find Senior Discounts (AARP)
- Here is a list of some discounts readily available, if you search online:
- America the Beautiful senior pass to National Parks
- Amtrak (15% discount)/ Greyhound (5% discount)
- Phone service plans (eg. Verizon 65 Plus Plan)
- Restaurants (IHOP)
- Rental Car Discounts eg. 30% off Hetrz
- Hotel (20% off Weston and Sheraton)
- Clothing (eg. certain days get senior discount)
- Flowers (eg. Teleflora flowers 20% off)
- Movies (eg. AMC over age 60)
And there are many others…just do a generic search online, or visit AARP’s site and you are sure to find many other cost-saving ideas!
Remember, plan today… protect tomorrow.
Until Next Time,
Peter Blatt is the president at Blatt Financial Group. He has more than 17 years’ experience in the financial industry. He received a bachelor’s degree in accounting from Boston University, a law degree and a post doctorate degree in tax from the University of Miami School of Law. Peter formerly ran the financial planning department of a Trust Company in Palm Beach. He is an active member of the Florida Bar Association, the Palm Beach County Bar Association and the former secretary of the Tax Section of the Florida Bar. He is the founder of the North County Advisor’s Council. He has been published or quoted in numerous periodicals including The Wall Street Journal, Yahoo Finance, SUCCESS Magazine and on Fox Business News.