Still looking for a New Year's resolution? How about cutting back on booze and repurposing the money you'll save for retirement?
After all, less alcohol would be good for your waistline, your health and your wallet or purse. Perhaps it would also benefit your state of mind. Just saying.
Booze Benefit
Chris McMahon, CEO of MFA Wealth and Aquinas Wealth Advisors, has a 56-year-old West Port, Conn., client who is chief financial officer of a technology firm. His New Year's resolution? To save $16,000 by cutting back on adult beverages in 2023. Motivation: he is newly divorced, and his employer slashed pay companywide by 12%. He wanted to get healthier physically and fiscally.
The extra money can also energize your retirement savings in particular like a double espresso, according to several leading financial advisors.
A married San Diego couple, who are clients of Simplified Wealth Management's Bob Chitrathorn, go out with friends about four times a month. The husband is an app designer. The wife works in marketing. Together they earn about $160,000 a year. They recently began their retirement funding alcohol alchemy. Their monthly spending on adult beverages is now about $550. Before last July, it was about $1,000, says Simplified's CFO and vice president of wealth planning Chitrathorn.
Now they can plow the savings into retirement savings accounts, Chitrathorn says.
Here are additional strategies for trimming your spending and boosting your retirement savings.
Cutting Booze And Other Strategies
And cutting back on booze of course is not the only way you can cut spending to free up cash to boost your retirement savings.
McMahon, Chitrathorn and other leading financial advisors share steps their clients have taken to repurpose hard-earned dollars into bigger nest egg contributions.
Look what's at stake.
If you invest $100 a month and it earns, say, 7% a year (that's a reasonable assumption since U.S. large-cap stocks averaged an annual gain of more than 10% from 1926 through 2022), that $1,200 grows into about $17,430 in 10 years, according to calculator.net. It grows into nearly $53,000 in 20 years.
If you can sock away $500 a month? It would grow into $87,143 in a decade. It would become $263,000 in 20 years.
Who would not want to inflate their retirement nest egg by those amounts?
Saving Up To $70,000
So, here are strategies that clients have put into practice at the urging of their advisors. Each saves the client at least $170 per month. We've calculated how much the savings grow into over 10 years, earning 7% annually. The 10-year savings range as high as nearly $70,000. That's a nice addition to anyone's retirement savings.
Sporty Wheels
Switch to a less expensive car. Sure, you love your car. So did a client of Michael Ashley Schulman, chief investment officer of Running Point Capital. The southern California woman is a health care professional in her early forties. She recently sold her "gently used" 2020 Porsche GTS convertible at a profit. Her new wheels are a roomier BMW M4 convertible. "She will save nearly $170 a year in California DMV registration fees and approximately $200 a month on insurance coverage," Schulman said. "The BMW is less expensive. And she raised her deductible. First-year net savings should be around $2,570. Win, win, win!"
- New retirement savings: $2,570 annual contribution grows into $38,536 in 10 years.
One Gym
Cut back on club memberships. The wife of a southern California doctor earning base pay of $270,000 a year belonged to two gyms. The woman dropped the more expensive membership, says advisor Melody Juge, founder of Life Income Management in Flat Rock, N.C.
- New retirement savings: $327 a month spending cut grows into $56,992.
How To Drink Less Booze
Quaff less booze. In their deep dive into their budget, those same clients of Juge found that ordering adult beverages tended to at least double the cost of dining out. To cut back, they adopted a new rule: they no longer order drinks that cost more than $2 each during a meal.
- New retirement savings: $230 monthly spending cut grows into $40,086.
Explore alternatives to insurance policies. A second couple who are advised by Chitrathorn abandoned their long-term care insurance (LTCI) policies for similar personal-care-at-home contracts for each of them. The Orange County, Calif., recent retirees received several discounts. One was for being members of an affinity group. Another was for making a single annual payment instead of monthly or quarterly payments. A third was for each year that they do not use care services. All together, their discounts reduce their costs by 65% vs. their old policies.
- New retirement savings: $400 monthly spending cut grows into $69,715.
Cable Alternative
Cut the cord. A retired, 79-year-old state employee in Corona, Calif., living on an $85,000 annual pension was paying more than $240 a month for AT&T cable-and-internet service. Advisor Ray Prospero, partner-advisor at AdvicePeriod, pointed out to this client that his existing Amazon Prime account includes movie and television streaming. "To receive local channels, he purchased an HDTV antenna for a modest price of $30," Prospero said. The client replaced his AT&T package with internet service provider Spectrum Internet.
- New retirement savings: $170 a month (excluding his antenna cost), which grows into $29,629.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about personal finance and the best mutual funds.
