Why don't you save more for retirement? Because you can't afford to, right? But what if you could ax a big chunk of your expenses and funnel the difference into retirement savings?
Leading financial advisors offer tips for doing exactly that.
Following their advice, you can cut expenses and boost your retirement savings. And you can create enough new savings to actually make a noticeable impact on your retirement balances.
Expenses: Convert Them To Retirement Savings
Consider this: $2,000 a year in extra savings can translate into a balance of nearly $69,000 in 20 years.
That happens if you sock away about $167 per month each year, your savings are invested so their annual return averages 5% and your gains compound daily, according to the calculator.net investment calculator.
Keep it up for 30 years, and you end up with nearly $140,000.
That's a nice cherry on top of whatever sweet confection you're already saving in an IRA and your 401(k).
And the 5% average annual return is a conservative assumption. U.S. large-cap stocks actually averaged a total return more than twice as large from 1926 through this past June 30, according to Morningstar Direct.
So what are the steps for saving at least $2,000 a year without having to condemn yourself to a lifetime of dog food for dinner? Financial advisors suggest real-world steps for cutting expenses and diverting the savings into your IRA or 401(k). Individually or taken together, these tips can save you $2,000 or more a year.
Physician, Heal Thyself
Lyle Solomon, principal attorney and a financial advisor at Oak View Law Group, steered a client into several steps for trimming expenses. The client, a 28-year-old physician with annual income of about $150,000, saved $3,250 from 2018 through 2019.
One of her key current economies is to drop several online subscriptions. She also reduced the number of times per week that she dines out. And she reduced spending on apparel, handbags and shoes. Instead, she sticks to a budget that she created at Solomon's prodding. "While she used to spend mindlessly before, she limited herself to buying anything of her choice, but under the budget," Solomon said.
Her monthly savings on shopping: $50.
Subscriptions that the client dropped included Apple Music, YouTube Music, HBO Max, Hulu and Sweat. Monthly savings: $121.
She reduced dining out to four times a week from six. Monthly savings: $110.
- Yearly expenses cut: $3,372.
Subscription Expenses
Michael Ashley Schulman, founding partner and chief investment officer of Running Point Capital, guided a 30-something, Los Angeles female client who founded a technology company into canceling monthly deliveries of cruelty free makeup, sustainable clothing and vegan food. Monthly savings: nearly $200.
Schulman said, "In round numbers, we look at the big picture when advising and coaching." Cost-cutting also helps clients simplify their routines and makes life less complicated, he says.
"She still believes in the causes, but found she was traveling so much that all the extra convenience of the subscriptions had actually become overkill and more of a burden than an enjoyment," Schulman said.
- Approximate yearly expenses cut $2,400.
Take Advantage Of Inflation
In February, a 49-year-old client in south central Pennsylvania of Bryson Roof, financial advisor at Fort Pitt Capital Group, decided to replace his gasoline-powered 2012 Toyota Venza with an electric vehicle.
He homed in on a new, glacier-color Kia EV6 as his new ride. The Kia's cost with taxes would be $58,000.
But when the car buyer asked how much he could get by trading in his old silver Venza, the EV dealer offered about $8,000. Shopping around, the client found that Carvana would pay $11,000 for the Venza. CarMax offered more than $12,000.
Roof's advice: Shop around. "Take advantage of inflation," he said.
- Year's expenses avoided: more than $4,000.
Internet Expenses
Bob Chitrathorn, CFO and vice president of wealth planning at Simplified Wealth Management, is saving money by practicing what he preaches. Chitrathorn has cut his television and internet expenses simply by asking his service provider for any available discounts. Chitrathorn then repeats the process when his discount period is about to expire.
His service provider, AT&T, offers a package with DirectTV.
"Call them and ask to speak to their loyalty department," Chitrathorn said, adding, "Be nice." If you are thinking of canceling service because of cost, your provider may offer you a promotional discount or some less expensive mix of channels and services, Chitrathorn says.
Remember to repeat the process once the promotional period is near expiration, Chitrathorn adds.
Chitrathorn obtained the same cost reductions for a second account he runs at his parents' home.
Chitrathorn says he has reduced his television and internet access expenses. Monthly savings on each account: $70.
- Yearly expenses cut per account: $840.
For more tips about cutting expenses and saving the difference, see this other IBD report. More tips here too.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively run portfolios that consistently outperform.
