Retirees face a brain teasing math problem on getting by with less.
It goes like this. The Social Security Administration estimates that for the average retiree, the monthly Social Security check will replace about 40% of pre-retirement income. But, said the agency, "Most financial advisors say you'll need about 70% of your pre‐retirement earnings to comfortably maintain your pre‐retirement standard of living."
Do that math. Say your income is $5,000 per month. Social Security would pay out around $2,000 monthly. But the experts say you will need around $3,500 per month to maintain your standard of living.
The question is: how to close that $1,500 gap? Don't say savings. Data via the Economic Policy Institute is adamant that many American families have little or nothing saved.
A survey by the Federal Reserve found that 25% of those over 45 have no retirement savings. Not a dime.
Pensions will give some an economic cushion but many have seen their 401(k)s battered in the great recession and others have no pensions whatsoever.
That makes for a gloomy picture but know this: many are still retiring and living well despite having nothing saved. For some continuing to work is the lifeline, with 25% of 70-year-olds still working.
For others, though, the better choice is this: "Really crunch the spend side of the equation," said Jeff Yeager, the 58 year-old author of How to Retire the Cheapskate Way.
Start by becoming your own CFO -- Chief Frugality Officer," said Yeager.
Yeager, who is adamant that he is not advocating attempting to live on Social Security alone, nonetheless insisted that for many Americans it is easy to live comfortably and well after retirement on much less than 70% of pre-retirement income.
A secret: start eyeballing every expenditure and, very probably, you will find plenty that do not have to be made at all. Heading the list of pre-retirement expenditures that are eliminated in retirement are business attire, commuting costs and business lunches.
But there are many more expenditures that can be sliced. A key, said Yeager, is to figure out what is truly important. When that's known, it is easy to stop buying the rest - and, he said, for many that may be much of what they habitually buy.
"A lot of what we buy gives us no pleasure," Yeager said. "That's why there's so much buyer's remorse."
Other experts offered more pinpointed suggestions for cutting expenditures.
Shop for need, not fun. 64-year-old Kathleen Hastings, a portfolio manager with FBB Capital Partners in Bethesda, Md, said she urges retired clients to be alert to shopping when bored. "They succumb to temptations and temptations are expensive."
Get rid of the superfluous. Just about every expert urged downsizing housing - move from that 3,000 square-foot suburban home to a 1,000 square-foot apartment (rented or purchased) in a nearby city.
That will reduce everything from utility bills to monthly rent or mortgage payments. There is also unanimous advice to pare back to one car, which also means eliminating a monthly insurance bill. Bargain hunt for cellphone service.
Scrutinize utility bills. Damon Gonzalez of Domestique Capital, LLC in Plano, Texas said, "I recently switched my cell phone plan to Google Project Fi. I pay $20 per month for unlimited calls and texts. It is then only $10 per GB of data. My last two cell phone bills have been less than $35 per month."
Do likewise with cable TV. Most providers now offer a streamlined basic cable package, such as Comcast's MyTVchoice at $25 per month, compared to the average cable bill of about $99.
Pick where you shop smarter. Multiple experts urged shifting much spending to thrift shops, eBay and dollar stores. 56-year-old Marcia Noyes, in New Braunfels, Texas, upped that ante with this suggestion:
"Shop estate sales. After buying all the furniture I needed, I kept going. Now, I buy things like food (not all places will sell the canned and boxed food, but many will). I buy paper products like aluminum foil, Saran Wrap and such, as well as toiletries, laundry detergent and staples for the yard like fertilizer, weed killer, etc. I arrive with a wad of cash and just today walked out with six huge bags of groceries for $57.00. I'll be eating on that for a month or more and only have to buy eggs and bread."
Note: she finds plenty of estate sales at www.estatesales.net.
Move to a place with a lower cost of living, urged frugality blogger Jill Bong, author of The Modern American Frugal Housewife. She personally did it, moving from the outskirts of Denver to southeastern Oregon, about 45 minutes from Roseburg.
The plus: "We are making a half to a third of what we made in Colorado," said Bong, who added that she and her husband are living every bit as well. "In fact we eat out more here."
Add this up and can expenses be cut to match a reduced income? The answer is yes, if you work at it. "In general the happily retired cheapskates had reduced fixed costs of living that could be paid for by fixed sources of income like Social Security," said Yeager.