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Living Frugally and Happily in Retirement

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The key to living frugally yet comfortably in retirement is knowing the difference between frugal and cheap. Paying less for inferior quality is cheap. Paying less for similar or superior quality is frugal. It’s all a matter of being methodical in your search for frugal comfort.

Frugal budgeting aims to achieve a cost-effective lifestyle in retirement that doesn’t sacrifice comfort. This involves knowing not only where to cut costs but also how to do so. Frugal budgeting is not haphazard. It’s thoughtful and documented. This involves creating a repeatable monthly budget that projects out a full year to allow for quarterly, semiannual, and annual expenses like income taxes, real estate taxes, and insurance premiums.

Key Takeaways

  • A frugal budget is a cost-conscious one that carefully considers spending and helps you save as efficiently as possible.
  • It is important to think about the lifestyle you want as well as what you’re able to afford in retirement and see if frugality fits.
  • Being frugal can be liberating and it shouldn’t be viewed as a punishment.
  • It can include some relatively painless steps such as downsizing in areas you don’t cherish.

Target Proportionally

A frugal budget considers the proportion of spending for each category as a way to find value and savings as efficiently as possible. The Employee Benefit Research Institute conducted a survey in 2022 and broke down how people aged 62 to 75 spend their money. Housing expenses took up 30% of their budgets followed by food at 25%, transportation at 12%, and medical and health insurance at 8%.

The Institute followed up with another survey in 2023 focusing on retirement confidence. This study found that 49% of retired respondents felt that their overall living expenses were higher than they anticipated. Of them, 18% said that these expenses were much higher.

Choose a Lifestyle

The most obvious thing to target first is where and how you’ll live: your home. Do you want to downsize from your two-story house to an apartment or condo? Relocate to a warmer climate or a small town? Do you want to try living a nomadic life in an RV or on a sailboat? Or are you like many people who just want to stay put, at least for now?

It’s important to think about the lifestyle you want in retirement so you can apply frugal strategies to it.

Downsize for Savings

Downsizing is part of the equation for many, including those who decide to stay put for now. Smaller homes are less expensive to buy and maintain. Downsizing also provides an opportunity to sell or donate household items that are no longer needed. You may be able to save money by using family and friends and renting a truck instead of hiring a moving company because you’ll have fewer belongings than you did before retiring.

Trim Transportation Costs

If you have two cars, sell one. Retirement may also be a good time to buy a newer, more fuel-efficient vehicle. Be sure to look at ways to reduce your auto insurance payments, too. See if you can cut costs there.

A smaller Class C might make sense if you’re planning to buy a motor home. Class A motor homes are expensive to own and maintain as well as costly to drive. You may not need a vehicle at all if you plan to live on a boat.

A Frugal Approach to Food

The best way to be frugal with food is to eat at home. Create a menu, build a shopping list, and stick to it. Impulse buying should only enter the picture when you come across an unexpected bargain. Shop for groceries at supercenters, dollar stores, wholesale clubs, and farmers’ markets. Many stores offer discount days with 10% or more taken off your entire bill.

Save on tipping when you’re dining out by looking for cafeteria-style or fast-casual restaurants with limited or no wait staff. Some of the nicer ones have excellent food offerings, table-side drink refills, and even staff to clear your table after you finish eating. Early bird specials offer additional savings when dining out, especially in resort areas.

Help Yourself to Better Health

It only makes sense to stay as healthy as possible. Stay up to date on vaccinations and flu shots. Get and stay fit by walking regularly. Walking is free and it’s an excellent way to stay fit.

Medicare Advantage (Part C) plans are often less expensive than traditional Medicare. The downside might be a limited range of physician choices. Schedule elective medical procedures after you’ve met your annual deductible and avoid out-of-network doctors when possible. Take advantage of free preventative services that might be included in your plan, like breast or colon cancer screenings. See your family doctor periodically for a checkup. 

Entertainment Options

Eliminate cable TV or at least reduce it down to the most basic package unless it’s necessary for reception. Add Netflix or Hulu for movies and other streaming options. Museums, art galleries, and many live performances are free or discounted to retirees. Check for discounts through AARP or AAA if you belong to either of these organizations. Many schools allow retirees to audit college classes for free without credit.

Clothing and All the Rest

Ask about retiree discounts everywhere you shop even if there isn’t a sign advertising them. You might be surprised at how many places offer them. It never hurts to ask.

And as you have more time than when you were working, use it to your advantage. Go to thrift stores. Attend garage sales, yard sales, and swap meets. Grow your own food or at least some of it.

What Are Some Tax Breaks Available to Retirees?

You’re entitled to a higher federal standard deduction if you’ve reached age 65 by the last day of the tax year. You can claim an extra $1,850 on your 2023 tax return in addition to the regular standard deduction for your filing status. This is the return you’ll file in 2024.

Is There a Cost to Join AARP?

The cost of becoming a member of AARP is negligible, as little as $12 a year for your first year as of 2024. You must agree to an automatic renewal of your membership and the price will increase at that time but the increase is only by $4 to $16 a year. You can get discounts for multi-year memberships.

How Much Does Medicare Cost?

The lowest cost of Part B medical insurance coverage is $174.70 per month in 2024. This is based on your annual income from 2022. Premiums increase for high earners. Single taxpayers can’t earn more than $103,000 per year or $206,000 if they’re married and filing a joint return to qualify for this premium. Earners of $500,000 or more can pay as much as $594 a month for coverage.

The Bottom Line

Don’t get up early. Waiting until daylight saves electricity. Give yourself plenty of time to get where you need to go and save on gasoline. One of the biggest enemies of frugality is rushing. It doesn’t just waste energy. It also wastes resources.

Don’t try to be frugal about everything all at once. Frugality isn’t meant to be a punishment. Enjoy your frugal lifestyle and stay comfortable for less.

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