Retirees must adjust to new economic realities. Here, based on suggestions from financial advisers, are strategies to cut costs

ByBen Steverman

Browse Issues

Browse the BusinessWeek Archive

Workers approaching retirement are often told by experts that they will need only about 80% of their income after they stop working to maintain the same lifestyle.

After all, expenses fall when retirees don’t need to dry-clean their work wardrobe and commute every day. and they have more time to shop for deals and handle house and yard work themselves. Presumably, the children are out of the nest or have their own financial flight plan.

The problem is that many retirees soon discover the 80% rule of thumb doesn’t work. “I’m finding that to be unrealistic with today’s retirees,” says James R. Miller, president of Woodward Financial Advisors in Chapel Hill, N.C. “It is more like 100%.”

Expenses associated with work might fall, but early retirees face temptations everywhere, whether in the form of travel, golf, club memberships, or more socializing.

A regular paycheck—and the obligation to save much of it each month—often constrains budgets. by contrast, the newly retired can dip into a nest egg for the first time, and “for some, it’s akin to winning the lottery,” says Ken Eaton, a principal at financial planning firm Stepp & Rothwell in Overland Park, Kan. Without the “artificial boundary” of a paycheck, “they can easily spend a lot more than their portfolio can sustain,” he says.

Bloomberg BusinessWeek received tips from more than two dozen financial advisers on how to spend less in retirement.

1. Adjust your health insurance

Through the length of a retirement, out-of-pocket health-care expenses can add up to hundreds of thousands of dollars. unfortunately, health care can be the toughest kind of spending to do without.

Because most health-care spending happens later in retirement, one option is to start out with a cheaper health policy. “Healthy people can choose lower-premium comprehensive—but still reasonably good—coverage in their early years, saving health-care dollars for later years,” says David Armes of Dover Financial planning in Long Beach, Calif.

Retirees should look at insurance options very carefully. Depending on your health problems and the medications you take, one policy could be much less expensive than the others, says Eve Kaplan, chief executive of Kaplan Financial Advisors in Berkeley Heights, N.J.

2. Flexible travel

Retirees have more time and a greater inclination to take trips. But they also can travel in the off-season or at odd times. “Flexibility might allow retirees to take advantage of more off-season specials or last-minute deals,” says Brenda Knox of Financial Elements in Rolling Meadows, Ill.

3. cut the purse strings

Several financial planners noted how often their clients use precious retirement savings to help adult children. Without a paycheck coming in to their parents, sons and daughters may need to fend for themselves.

Kaplan advises charging adult children reasonable rent or board expenses if they’re living with you.

4. Curb your cars

Can your household manage sharing one automobile? One fewer car in the garage would slash payouts for insurance, car payments, and maintenance.

Without a daily commute, you’re likely to put less strain on your cars. So consider waiting longer before you buy a new set of wheels.

5. use cash

Financial planners offer many tips for essentially tricking yourself into spending less. they include waiting periods for major purchases and automatically putting parts of your portfolio off limits for purchases. the idea is that, by artificially constraining your buying abilities, you are forced to spend only on your true priorities.

Another popular trick, planners say, is to use cash whenever possible. Buying with a credit card or debit card can often be too easy, says Paul a. LaViola of RTD Financial Advisors in Philadelphia. “It feels more real—even painful—when you use cash,” LaViola says.

6. Watch those investment fees

Investing is one area where customers get less by paying more.

Fifteen Ways to Slash Spending in Retirement