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One of the biggest fears you probably have about retirement is will your money last as long as you do. It is likely that you are also asking: How much can I spend? How much do I need? How much do I actually have? There are so many questions. Good news: the Stanford Center on Longevity in collaboration with the Society of Actuaries (SOA) has some answers. They analyzed 292 retirement income strategies and are recommending the “spend safely in retirement strategy” as the best way to spend in retirement. Use the spend safely in retirement strategy to stoke the embers of your finances.
Spend safely in retirement? It sounds promising. But what in the world is it? And do you need to follow it for a secure retirement?
Let’s find out…
How can the spend safely in retirement strategy help you have a more secure retirement?
The lead Stanford researchers, Steve Vernon, Wade Pfau and Joe Tomlinson, wanted to figure out which retirement income strategy gave the highest number of retirees the biggest amount of income possible that would last their lifetimes.
Among other things, they also wanted a retirement income system that:
Almost anyone could actually implement on their own — without the help of a financial advisor
Reduces the risk of volatility
Could keep pace with inflation
Limits the possibility of failure — falling short
What is the spend safely in retirement strategy?
The spend safely in retirement strategy is designed to help middle income workers and retirees to decide when to retire, how much to spend in retirement and how to best deploy your financial resources.
The main goal of the strategy is to help you turn your assets — Social Security, the ability to work, savings and home equity — into the most retirement income possible.
Why should you trust this retirement income idea?
You have probably read about hundreds of different retirement income strategies. Why is this one different? Well, to start, this concept is being proposed by some really smart guys who have done unbelievable amounts of detailed research and calculations to make this recommendation.
Not only are these professionals smart, but they also are applying expertise not always used in retirement planning. As the spend safely in retirement report says: “Professionals with expertise in investing tend to favor investing solutions that generate retirement income, while professionals with expertise in insurance products tend to favor annuities. Both types of professionals might not consider or advise their clients regarding other financial resources such as home equity and reverse mortgages.”
The spend safely in retirement is a more holistic approach.
5 components of the spend safely in retirement strategy
There are basically 5 parts to the spend safely in retirement strategy:
1. Delay Social Security: Maximizing the value of this benefit means waiting to start until at least your full retirement date. The longer you wait to start Social Security, the greater your monthly benefit will be. Use a Social Security break even calculator to figure out an optimal age for you to start. And, if you are married, learn about the smartest Social Security decision you can make.
Vernon writes, “Social Security benefits are a near-perfect retirement income generator, protecting you against several risks of living a long time: inflation, stock market crashes and cognitive decline. It only makes sense to maximize the value of this essential benefit.”
2. Plan Your Withdrawals from Savings: The Stanford researchers recommend that your retirement savings be invested in low-cost mutual funds, target date funds or index funds.
And then, use the Required Minimum Distribution (RMD) formula to determine your annual withdrawals from these savings. (And don’t make earlier withdrawals. If you do, keep it to 3.5% of the value of your accounts.)
RMDs begin at age 70 1/2. You are required to withdraw 3.65% of your savings at this age and this percentage will increase each year.
3. Get Detailed with Projected Expenses: Now comes the hard part. You need to see if the income from the above sources — as well as a pension if you are lucky enough to have one — is adequate to cover all of your projected expenses.
The more accurate you can be with projecting your expenses, the more reliable your plan will be.
4. Explore Other Sources of Income if Existing Sources are Insufficient: Once you determine how much income you can get by maxing Social Security, any pensions you might have and modest yearly withdrawals from savings and have compared that to your projected expenses, you can now start to work out how to fill in for any shortfalls.
The spend safely in retirement strategy recommends you consider delaying retirement, reducing expenses, getting a retirement job and/or tapping your home equity to fill in the gaps.
This strategy sounds pretty straightforward. But is it for you? Don’t take their — or anyone’s — word for it. Try it out with your own data!
You can discuss the spend safely in retirement strategy with a financial advisor, or you can try out the strategy yourself using any highly detailed retirement tool.
The NewRetirement retirement planning calculator is perhaps the only FREE tool that can really allow you to try all of the scenarios that are part of the spend safely in retirement strategy.
It is easy to get started with this award winning tool:
Begin by entering where you stand right now — your savings, when you would like to retire, etc..
Then try the spend safely in retirement strategy for your Social Security and savings. (The NewRetirement system actually automatically calculates and applies your RMDs. If these withdrawals are not being used to cover monthly expenses, then they will be added to your “Other Savings.”
With each change you make to your existing data, you will be able to see exactly how your cash flow, out of savings age, estate value and potential for debt is impacted.
NewRetirement's award winning retirement calculator lets you try out the spend safely in retirement strategy.
In some ways, managing money in retirement gets a little easier than before. You only have the money you have, so your options are somewhat simpler and more limited. On the other hand, the rules of money management shift in retirement so it may seem more complicated to you.
No matter whether you find it easier or more challenging, here are 10 tips for managing money in retirement:
1. Be Tax Efficient with Withdrawals
Every penny counts when managing money in retirement and that is especially true when it comes to tax savings.
Every retirement account you have may be taxed differently and you will want to be strategic with how and when you take withdrawals from each bucket. A few tips to consider:
Prioritize withdrawals for your required minimum distributions — mandatory withdrawals that start at age 70 1/2.
Consider a Roth conversion to spread out when and how much you are taxed.
Be aware of how much you withdraw each year and how the amount impacts your tax bracket.
Taxes are really complicated and what is best for you is different from what is best for anyone else.
Tax efficiency is one compelling reason why you might want to work with a good financial advisor for retirement. You will want to look for someone with experience specific to income taxes as well as someone familiar with retirement drawdown strategies. (Many financial advisors are well versed in helping clients save money but have less experience with managing and drawing it down in retirement.)
2. Focus on Creating Retirement Income
If you have been saving money for retirement, you have probably been worried about stashing aside as much as possible and maximizing your returns on investments.
However, when you retire, most experts recommend that you worry less about returns and more on figuring out how to turn your retirement assets into reliable retirement income.
In fact, research indicates that retirees who have guaranteed their retirement income are happier and much less stressed than retirees who make unpredictable withdrawals from their retirement accounts.
Annuities are one way to turn retirement savings into a predictable income stream.
3. Make Trade Offs — Know What is Important to You
“I want it all and I want it right now” is not a retirement money management mantra that works well for almost anyone.
The good news is that at this point in our lives, we know — better than ever — what we like and what we want. If you focus on what is important to you, you may find that you can spend less overall.
If a trip to Europe is on your list, you can probably make that happen no matter your finances. It just may require a lot of prioritizing and cut backs in other areas of your life.
4. Prioritize Spending on Yourself
Family is one of our biggest sources of joy. However, unless you have budgeted for helping out adult children, brothers and sisters or your own parents, you simply might not have the money to help them out financially.
Once you are retired, you do not have as much opportunity to make money. You are required to live with what you have. In retirement, every expense needs to be accounted for.
Experts predict that home equity is going to help out most of us lucky enough to own a home.
For most households, home equity represents our biggest source of wealth and there are a variety of ways we can use that wealth to help pay for retirement.
Downsizing is an efficient way access the money you have in your home and a great option if you are living in a relatively expensive location or in a home that is too large for your needs in retirement.
If you love where you live and want to stay there for the rest of your life, then a reverse mortgage is an increasingly popular way to eliminate ongoing mortgage payments and/or borrow some of your own home equity while retaining ownership of your home.
6. Wait as Long as Possible to Start Social Security
The differences in lifetime value between starting Social Security at age 62 and delaying until 67 or later can be hundreds of thousands of dollars.
Social Security offers you guaranteed monthly income for as long as you live. If you can wait to start it, you will enjoy a higher standard of living.
Just because we have retired it does not mean that we don’t continue to evolve and change.
In fact, numerous studies have shown that retirement spending goes through predictable phases. When we first retire, we might spend more than before — we are active and doing lots of things. After that, we enter a period of slowing down and staying closer to home and we spend less than at almost any other period of our lives. In old age, medical expenses cause spending to spike.
When planning for managing money in retirement, it is useful to be mindful of these shifts. The NewRetirement retirement calculator lets you set different spending levels and enables you to plan medical spending.
8. Have a Plan for Out of Pocket Health Expenses
Fidelity Investments has been tracking retirement health care costs for years. Their most recent retirement health care cost estimate predicts that a 65 year old couple retiring this year will spend $254,000 on healthcare throughout retirement.
This amount will be spent on deductibles, co payments, premiums for supplemental coverage, prescription drugs and other expenses that Medicare doesn’t cover, such as hearing aids and eyeglasses. However, this amount does NOT include the costs of a long term care need which could mean another $100,000 and more in spending.
According to a 2013 Fidelity Study, nearly 40% of couples disagree on the lifestyle they want after retirement.
Couples have different ideas for how they want to spend time. “Men are significantly more likely to envision indulging in their favorite sports, women are more likely to envision spending time with family, enjoying hobbies and volunteering in their local community.”
Thirty-six percent of couples either don’t agree, or don’t know where they plan to live in retirement.
Retirement is not the end of the road for managing money in retirement. You can not simply create a retirement plan, retire and live happily ever after.
You need to keep assessing your situation and adjusting your plans as you move through life. Maybe your priorities change or your investments perform differently or perhaps you decide to go back to work. These events will profoundly impact your overall financial well being.
The NewRetirement retirement calculator is a unique tool that let’s you assess where you are now and then adjust and maintain your information over time. This tool was recently named a best retirement calculator by the American Association of Individual Investor’s (AAII).
Time to put these money management tips to work in your retirement plan
You have probably read somewhere that you need $1 million in savings to retire. While that is not entirely true, we are here to tell you that it IS possible to have a million dollar retirement even if you haven’t started saving quite yet.
According to a recent GOBankingRates survey, 29% of adults age 55 and up have no retirement savings whatsoever and another 15% have less than $10,000 saved.
However, even if you are among the penniless, don’t despair! Follow these 3 easy steps for a million dollar retirement (or at least enough savings to be comfortable):
Step 1: Plan on Working until at Least Age 70
The longer you work, the longer you can save and the less you will actually need for retirement.
Working until age 70 may seem like an eternity. But, do you know what would be worse? Trying to live on too little money for 20-30 years of your life.
Step 2: Save More Money! Max Out Your IRA and/or 401k with Catch Up Contributions
For most of us, everything about retirement planning is simply a matter of trade offs.
If you spend less now and save it for retirement then you’ll have additional money later and be much more comfortable in your golden years.
You can save money however you like, but socking money into a 401k or IRA is usually the most efficient route to retirement savings (with the added benefit of major tax breaks). And, as a bonus, the contribution limits to these accounts go up when you are 50 or over so even more money can be saved with major tax advantages.
If you are 50 or over and have both an IRA and a 401k, you can save a total of $31,000 in these tax advantaged accounts:
$24,500 to a 401k
$6,500 to an IRA
These numbers can be doubled if you are married — each of you could be saving big into these accounts!
But, just how do you save more money? Most people feel like they are barely getting by. Think about it though, if you REALLY wanted to, you could probably save more. It’s kind of like saying “I am so busy and don’t have any time” when you spend some of that time mindlessly reading your phone or watching TV. You could probably be smarter about time management and it’s likely you can be smarter about money management.
Need more inspiration? Here are 3 articles that could help you figure out how and commit to saving more:
Investing for retirement can be tricky but as you’ll see, this is how to grow your money into a million dollar retirement.
Your asset allocation should probably include some equities to allow for growth with the rest in asset classes like bonds and others that are not subject to as much volatility as the stock market. So, you might be earning a 6-7% return on some of your money that is invested in stocks or a riskier vehicle, but a lower rate on other money that is invested in bonds — averaging perhaps around 4%.
If you could figure out a way to save $31,000 a year and could earn a relatively modest 4% return on that money, it will add up quickly — very quickly (and even faster if your rate of return is higher):
If you start at age 50, you will have: $1.1 million at age 70.
Starting 5 years later at 55, you could accumulate $740,000 by age 70.
Even if you are already 60, you could still get to $430,000 by maxing out your contributions through to age 70.
Even saving half that amount — $15,500 a year ($12,250 to your 401k and $3,250 to an IRA) — and earning 4% could result in a sizable nest egg by age 70:
If you start at age 50, you will have $560,000
Starting at 55 will get you to $370,000
At 60, you could accumulate $210,000 in the 10 years to age 70
Explore these retirement investment resources to help you achieve a million dollar retirement:
You Probably Don’t Really Need a Million Dollar Retirement
As you can see, by scrimping and really saving, you can achieve a million dollar retirement, even if you don’t start saving until you are 50.
However, do you really need a million dollars to feel good about your retirement security? Frankly, the answer is probably not.
Here are a few ideas for making do with less (even MUCH less):
Retirement Spending: Your spending is the biggest driver of how much you will need for retirement. It goes without saying — the less you spend, the less you need. (And, if you cut down expenses to save more before you retire, you might discover how easy it can be to live on less.)
Work Longer: It doesn’t even need to be full time work, but any kind of work income for as long as possible can make a huge dent in your retirement savings needs. Start a business, explore passive income ideas, find a job you really love (even if you are earning a bit less) or just grind it out in your current career.
Tap Home Equity: Can you downsize your home? Depending on the value of your home equity, this could potentially get you hundreds of thousands of dollars for retirement. If you want to stay where you are, a reverse mortgage can be one way to access your housing wealth and use it for retirement.
Watch Debt: The less you owe, the less you need to pay out. Get rid of debt as early in your life as possible.
Get Creative:Retire abroad. Rent out a room in your home. Sell your car and walk. Get solar panels. Tell the kids to fund their own college tuition. Be flexible about travel. If you don’t want a million dollar retirement, you will probably need to be creative.
So, How Much Do YOU Really Need?
The real answer to this question is entirely dependent on all of the factors above — and more (inflation, how long you live, your health, unexpected costs, the global economy, etc…).
So, the only way to find out how much YOU really need is to work with a reputable financial advisor or to use a highly detailed retirement planning calculator.
Some individuals dream of the day when they can do absolutely nothing. To them, retirement is a euphoric future of sleeping in, lounging in the sun, and thinking as little as possible for the next 30 years of their lives.
For most of us though, a life of zero activity and thought would drive us absolutely nuts! Sure, a few days of relaxation is great, but after that, it’s time to tackle something, learn and grow from it, and then conquer the heck out of it!
Acting on our passions and setting future goals can really do great things for a person – for their mind, body, and soul. If you find yourself nodding to this statement, then the next question is, “Have you considered starting a business after retirement?”
Business ideas for the over 50s don’t have to be blockbusters. It doesn’t have to be big. It doesn’t need to be impressive. It just needs to fulfill that void that’s probably been inside of you for many years – yes, even while you were working that supposedly fabulous full-time job.
Starting a business after retirement is probably right for you if you’ve always longed to….
Be your own boss
Do what you love full-time
Help others directly
Learn something totally new
Build a massive business from absolutely nothing
Starting a Business After Retirement Could Allow You to Retire Early
Here is the kicker… Starting a business after retirement could potentially allow you to retire early. (Or make your money last longer if you are already retired.)
Think about it. Earning a little extra money can mean doing something you love and strengthening your short and long term finances.
Use a comprehensive retirement planning calculator to see if starting a business after retirement impacts your retirement age or your financial security in retirement.
The NewRetirement tool lets you set different levels of income for different periods so you can easily see the impact of starting a business after retirement.
If you finally want to tackle your dreams and love the idea of setting up a retirement of purpose (instead of, you know, being a slug like some of your friends), then I suggest you seriously consider these 12 small business ideas for the over 50s:
1) What Do You Love? How Can You Turn it into a Business
Everyone has some kind of interest in life and no matter what it is, you can probably figure out a way to make money.
Build model trains? Could you host kid birthday parties or workshops?
Play tennis? What about offering lessons? Start a tournament?
Watch TV? How about starting a blog reviewing favorite shows?
Love baseball? Have you considered organizing tours to games or ballparks?
Reading and cooking? Maybe you could cater a pop up restaurant in your home based on a different book each month
How to Get Started: Start small by offering services to friends for a small fee. See where it takes you!
2) Financial Advisor
Have you ever met a “financial advisor” that was 22 years old and was supposedly going to teach you – a 50 year old that has actually lived life and experienced the swings in the market – how to retire comfortably? What a joke.
You know who can properly sell themselves as a financial advisor?
You – the well-seasoned veteran of life and money.
If you’ve done well for yourself financially, if you’ve already earned your bachelor’s degree, and if you love to help people, then this small business idea for the over 50s is probably a slam-dunk for you.
There are some benefits to being older — with age comes wisdom. One of the best business ideas for the over 50s is consulting!
Are you an expert in your field? Could other companies benefit from your wisdom?
But don’t limit yourself to these five if you think your expertise is still valuable. There are plenty of consulting opportunities for more unique fields. Areas like home office design, organization, and even color consulting!
4) Starting a Business After Retirement: Marketing, Bookkeeping & Administration
If you come from a business background with skills in administration, marketing, accounting or finance and know how to organize a business, properly categorize expenses and make payments, you could probably handle this work in your sleep – and have a blast doing it for exciting new startup companies.
Better yet, many of these activities can be done almost anytime anywhere. This kind of flexibility makes it a best business idea for the over 50s. And, according to Robert Half, the most in-demand consultant areas are: finance/accounting, business systems, tax, risk mitigation and optimization.
And there is a huge need for administration, marketing and bookkeeping services. This is the day and age of small business – mainly, online business but many entrepreneurs don’t necessarily have experience with running a business.
If you find yourself talking to a millionaire in the near-future, chances are that they own (and rent out) some property. Real estate is an excellent investment, plain and simple. It always has been and it probably always will be.
Don’t consider yourself hard-nosed enough to deal with those inevitable tenants from hell? Then maybe a B&B is more up your alley. Buy a home in a touristy area, serve a decent breakfast, and enjoy interacting with couples from all around the world!
Bed and breakfasts obviously aren’t as passive as rentals, but if you like interacting with and serving others, then this might just be the fun business idea you’ve been looking for.
Building a business from nothing is no easy task. I’m sure you’ve heard the well-known statistic that 4 out of 5 businesses fail within the first five years. If you’re not willing to struggle for years while getting your business off the ground, then perhaps you’d do better just buying one that already has some clientele!
Of course, “buying a business” is about as broad a statement as one can make, but while you’re reading through this list and thinking about what you might like to do for your encore career, consider what might already be available for the taking.
And, if you have the financial means to do it, it might actually be the more profitable move when you consider the potential for immediate earnings!
Of all the small business ideas to start after 50, this one regularly captures the most attention. It’s attainable, understandable, and someone out there is willing to walk you through the process (because of course, it’s in their best interest to do so as the franchisor).
No, McDonald’s is not the only wicked-awesome franchise out there (in fact, strike if off your list if you don’t already own one – they’re not looking for newbie franchisees). There are dozens of other franchises with fantastic track records (and they’re not all restaurants either)!
Here’s a quick list of the top franchises out there currently:
The UPS Store
Sonic Drive-in Restaurants
Is the thought of a franchise starting to peak your interest? Check out the link below!
You’ve worked hard at your career and you’ve done well for yourself. Congratulations!
Money isn’t an issue for you, and in fact, you’ve got more of it than you know what to do with. None of the above or below options really appeal to you, but you love the idea of helping someone take their passion main-stream, and they’ll even pay you handsome royalties as it succeeds!
Sound like fun to you? I can’t see why it wouldn’t!
Have you always had a knack for finding products for well-below market price?
Maybe you find them on the clearance rack,
perhaps you nab them off the web, or
it might be that you just love perusing garage/estate sales and find your deals under layers of junk!
Whatever the case may be, if you’re used to buying low, then it’s probably time to try your hand at buying and selling for a profit.
The concept is really simple (in fact, we basically already covered it in the generic intro…) – find ways to buy super cheap products, and then sell them through a medium where you can earn more (typically Amazon, Facebook, Craigslist or eBay).
Are you doubting that this small business idea can actually earn some money? Check out the link below. This option is for real.
There’s just something serene and fulfilling about painting the interiors of houses. Maybe it’s the calming strokes of the brush, or perhaps it’s the sense of accomplishment and pride that you get once the job’s done. Whatever it is, it’s oddly fun to do…AND you can make some pretty good money at it too!
Maybe you like the idea of working with your hands…but you’d really rather be outside soaking up the sun — consider landscaping and gardening.
Entry into this market is pretty much as easy as it gets. All you need is a mower and a means to get it from place to place. Call up some neighbors, leave a few flyers on people’s front doors with your steal-of-a-deal introductory price, and wait for a few gigs to come in.
Do a good job and you’ll not only keep those lawns, but you’ll probably start getting referrals as your clients talk to their friends about your great work (offer referral discounts and they’ll be even MORE likely to spread the word).
I’ve known plenty of people that took up handy man type careers. They loved talking about the work they did (and for who – sometimes local celebrities) and it allowed them to pseudo-retire without ever touching their retirement nest-egg.
If, in the beginning paragraphs of this article, your eyes lit up at the thought of impacting someone’s life and making a true difference in this world, then this is likely the small business option for you.
Today’s world is an interesting one – especially for those that are early in their careers.
Young adults are often:
Outspoken “leaders”, but know little about the topics at hand
Confident and happy, but shy, withdrawn, and insecure on the inside
Willing to do what it takes to succeed, but really have no idea what their definition of success even is
In other words, young adults look awesome, sound awesome, but really have no clue about life in general.
They need your help.
You’ve been there done that. You’ve climbed the ladder, done the networking, got the atta-boys, and seen the dollars. But most importantly, you now know what it all means.
Become a life coach to help others succeed – not just in the corporate world, but in all areas of life. And you know what? They’ll be happy to pay you for their life well-lived.
Direct sales and network marketing – you probably can’t believe that this one made the list, huh? For many of you, this type of business is an absolute joke, but you’ve got to realize that some people earn a fantastic living here. It IS possible.
You’ve heard of some of the top companies:
…and there are obviously many more.
If you like the idea of selling a product that you love AND teaching someone else how to sell it too, then you’ve actually got a chance to succeed with the network marketing model.
Most don’t earn more than a hundred bucks a month, but some find a way to earn hundreds of thousands each month. If you think you can excel and become the latter, the venture would obviously be well worth the effort.
You want to know why most small business startups fail? The overly-excited new owners put minimal thought into their business idea.
Here’s how it typically goes. They take a look at the list above, say to themselves, “I like….#10”, and then proceed to buy a mower, weed trimmer, and maybe even some flashy shirts, and then find that it’s too difficult to drum up new business and quit almost immediately.
You, however, you’re different. You’ve already succeeded in this life. You know that success doesn’t come by accident. Instead, it comes with careful planning, determination, and continued learning. This venture is no different.
First, be honest with yourself and choose the business that works best for your skill-set, your personality, and your interests.
Second, consider the financial obligations. Are there huge upfront costs? What is the likely income in the first few years? What are the recurring expenses? Do you need to buy insurance? Do your research here long before you even spend your first dollar.
Third, when you get started, go hard and don’t stop for at least 6 months. No matter what your business venture is, it’s going to require consistent effort and focus.
Constantly plan, do, check, adjust. If something’s working, expand on it. If it’s not, either toss it or alter it dramatically so it turns the corner.
You’re about to enter one of the most exciting periods of your life. Do you feel those tingles on the back of your neck? Is that internal smirk making its way onto your face as a full-blown smile for all to see?
You’re ready, and you’re going to kill it this year. Best of luck to you and congratulations on your future successes.
See how starting your own business could benefit your retirement plan
While pensions are not nearly as common as they once were, they are a very important part of the retirement plans for many of society’s most valued workers: teachers, police officers, fire fighters and more! However, it is surprisingly hard to find a reliable retirement calculator with pension controls.
Whether you have a state retirement pension, federal retirement pension or private retirement pension, here are some tips for finding and using a retirement calculator with pension.
First Up, Which Are the Retirement Calculators With Pension Controls?
Even though millions of people still have pensions, almost none of the most popular retirement calculators offer pension inputs. Of the few that even mention pensions, only one offers you really meaningful inputs.
Some calculators like the CNN Money calculator group pensions with Social Security and other income. This is not a great idea since you may have completely different start dates for these income sources.
The Vanguard Group calculator allows you to enter what percentage of your retirement salary will be from a pension — but not dollar amount, start date, adjustments, etc…
Lump Sum or Monthly Payments: To start, you can opt to enter either a lump sum pension payout OR monthly payments. This alone is hugely useful, enabling you to compare which type of pension will have the best impact on your overall retirement finances. Go back and forth between options and play with the numbers until you are satisfied with your decision about your pension.
No Limit on Number of Pensions: For both you and your spouse, you can include as many different pensions as each of you actually have.
Tax Status: You can also specify whether or not each of your pensions is taxable.
Start Age, COLA, Taxes and Survivor Benefit:
If you have selected a monthly pension benefit, you specify the exact start age, whether or not there will be a cost of living adjustment, tax status and — if you have a survivor benefit — what percentage of your benefits your heir will receive.
If you select a lump sum payout, you specify if it is taxable, the savings account to deposit it into, and the age when you will receive the benefit.
What Else is Important in a Retirement Calculator with Pension?
Some of the following considerations may be particularly important to people with pensions, but most are critical factors to almost anyone who wants a credible retirement plan:
Retirement Job: Many people who retire with a pension opt to work in some kind of retirement job. It is important that your retirement calculator lets you set as many different work income phases as you might have. And, passive income sources as well.
Housing: Do you plan on moving after retirement? Downsizing or upsizing? Look for a calculator that factors in your housing wealth. If you own, this is probably your most valuable resource.
Social Security: Not all pension recipients are eligible for Social Security, but many are. You will want the option of entering a Social Security start date which could be different from your pension start date. (If married, you also obviously want separate controls for your spouse. See more about special considerations regarding retirement calculator for couples.)
Expenses: After retirement, your spending is likely to evolve. Make sure you use a retirement calculator that allows you to customize different phases with different levels of spending.
Assumptions: Most retirement calculators ask very few questions and make a huge number of assumptions. However, you are not likely completely average. If you want a reasonably accurate retirement plan, you will want to be able to play with all of the details — inflation, medical spending, rates of return on investments, debt levels, how to manage a possible long term care event and much more.
How Much Savings do You Need if You Have a Pension?
How much retirement savings you need if you have a pension will vary pretty dramatically from person to person.
It all depends on how much you spend, do those expenses change over time, do you have expensive health issues, how much of your retirement income is guaranteed for life, etc…
The basic math for figuring it out is to add up all of your lifetime retirement income sources (pension, Social Security and annuity or passive income) and see how that compares to your projected retirement spending. If there is a gap, then you need retirement savings to fund that difference.
The tool is ideal for planning an early retirement because it covers a comprehensive set of information relevant to retirement and lets you customize everything.
See what real users say about the tool. Here is a sampling of recent feedback:
Most comprehensive estimator I’ve found in years of searching!
Atlanta, GA – November 20, 2017
The financial and other personal data questions are the most comprehensive that I’ve seen by light years. I find the tool to be easy to use and pleasantly inviting. I love it so much that I sent the link to all my Facebook contacts. Thank you so much!
Reidsville, NC – Feb 8, 2017
Very concise, intuitive to use, easy to compare different scenarios, and not intrusive, does not need any of your personal details, so even people concerned about privacy can use it.
Madison, WI – Dec 14, 2016
I like that the tool includes the addition of a pension. Not many tools include that. I also like that it gives an optimistic and pessimistic view of future earnings.
Madison, WI – June 24, 2017
Are you ready to retire? Find out with the best retirement calculator for pensions
A Health Savings Account or HSA is a medical savings account that is attached to a high deductible health insurance plan. It can be a savvy way to save money by reducing your overall medical spending. It can also have compelling retirement savings benefits.
Money can be deferred into an HSA account on a pre-tax basis just like a traditional 401(k) or IRA contribution. When money is withdrawn to cover qualified medical and dental expenses, withdrawals are tax-free.
How Can an HSA Save You Money?
An HSA saves you money in four compelling ways.
HSA contributions are tax free: Contributions to your HSA are made before your income is taxed. So, you are taxed as if you make less money. (For example, if you make $75,000 a year and you put $4,450 into an HSA, you are only taxed on $71,550.)
Money in an HSA grows tax free: Any interest or investment returns you earn on your HSA are tax free. You do not pay any taxes on growth in the account.
Withdrawals for eligible medical expenses are tax free: Any money you withdraw from the account to be used on eligible medical expenses is tax free.
High deductible health plans are usually less expensive: Most high deductible health plans have lower monthly premiums than other kinds of plans. Typically, the higher the deductible, the lower the premium. (However, these plans are not the best type of insurance for everyone.)
So, money in an HSA is truly tax free — you do not pay taxes on that money anywhere in the cycle. And, you could potentially save money on a lower cost health plan.
How do you qualify for an HSA? What is a high deductible health insurance plan?
You can open an HSA if you have a high-deductible health insurance plan.
A high deductible health insurance plan is one that has minimum deductibles as defined by the IRS. For 2018 those minimums are:
$1,350 for a single person
$2,700 for a family
A plan with deductibles lower than this does not qualify as high deductible per the IRS and an HSA can’t be used with it.
A deductible is the amount of money you need to pay toward your health costs before your insurance starts picking up the bill. After you have met your deductible, then you are usually still required to pay a copay for services until your out of pocket maximum is met.
So, if you have a $2000 deductible with a $5,000 out of pocket maximum, then you will fund your medical costs until you have spent $2,000. Thereafter, you will probably have a copay until you have spent $5,000.
The general rule of thumb is that high deductible plans are good for people who are generally healthy. However, they can be problematic if you have a sudden and serious medical issue.
What are the contribution limits to an HSA?
The IRS also sets the amount that can be contributed to an HSA on a pre-tax basis. For 2018 the annual limits are:
$3,450 for an individual
$6,900 for families
Those who are 55 or over can contribute an extra $1,000
What are the out-of-pocket maximums for 2018?
There are also limits on the amount of out-of-pocket expenses, including coinsurance, copayments and deductibles. For 2018 these are:
$6,650 for an individual
$13,300 for a family
What is the difference between an HSA and a Flexible Spending Account (FSA)?
You may have also heard of a Flexible Spending Account (FSA).
Both the HSA and the FSA are health savings accounts where your contributions are made on a pre-tax basis. They also share the ability to use the funds in the account to cover qualified medical and dental expenses on a tax-free basis.
The key difference between the two accounts is that the FSA is “use it or lose it.” This means that money contributed to the FSA must be spent in that year or it will be lost. Money contributed to an HSA can be carried over from year-to-year, hence the reason it can be used as another retirement savings vehicle.
Consider an HSA as a retirement savings account: It’s probably the most tax advantaged way to save
HSAs have an interesting side benefit as being a potential source of tax free retirement savings.
Because money in an HSA can be carried over from one year to the next, you could carry these very tax free funds into retirement.
An HSA is clearly the most tax advantaged investment option available. And, as yet another retirement benefit, there are no minimum required distributions at 70 1/2 as there are with other kinds of retirement accounts.
The key to this strategy is using other funds to cover out-of-pocket medical expenses while you are working, letting the HSA funds grow until retirement.
Many company HSA plans have investment options. Additionally, many banks and investment custodians offer HSA accounts with investment options similar to IRAs.
Once you get to retirement, funds can be withdrawn from the HSA to cover a wide range of qualified medical and dental expenses. In addition, the cost of long-term care and Medicare premiums are considered to be qualified expenses. Any funds not used for qualified medical expenses can be withdrawn after age 65 without a penalty. Just like an IRA, these withdrawals will be subject to taxes. There is a wide range of expenses that are considered as qualified.
With the ever-increasing cost of medical care in retirement, an HSA can be a valuable addition to your retirement savings efforts.
How will medical expenses and your plan to cover them impact your overall retirement plan?
Did you know that a truly comprehensive retirement calculator can do A LOT more than answer the questions most of us know to ask: When you can retire? How much you need to retire? Are you likely to run out of money?
There is so much more to retirement planning than just having enough savings. And, you have more control that you think when it comes to having a secure retirement. A comprehensive retirement calculator will enable you to make trade offs and try infinite possibilities between working, saving, investing, spending, leaving something behind and more.The reality is that there are hundreds of different variables that can dramatically impact your retirement security.Below are 15 retirement plan categories with lots of different ideas of scenarios you can try in a comprehensive retirement calculator. As you experiment with these ideas for your finances, you will be able to:
Assess the trade offs of each possibility
Make more informed decisions about your finances
Mix and match different options for a stronger more secure plan for your future
You Need a Comprehensive Retirement Calculator to Try Different Retirement Planning Scenarios
You can try any of the ideas listed below in any detailed and comprehensive retirement calculator. However, a simple retirement calculator won’t work for running most of the following scenarios.
The NewRetirement calculator is one option. This tool has the added benefit of giving you real time feedback on each and every change you make to your plan. Whenever you alter a piece of your information, the system calculates how that change impacts your:
Out of Savings Age: The age at which you will have used up all of your savings
Lifetime Debt: Lifetime debt is your estimated unfunded liability at your longevity. It is the amount of additional savings or income you will need throughout your retirement years to cover expenses. (If you do not have adequate savings, the system shows you how much more you need to cover expected expenses until life expectancy. If you have adequate savings, then your Lifetime Debt is zero and the system shows money being added to or subtracted from your estate.)
Cash Flow: Cash flow is the net amount of cash coming in (income) as compared to your expenses. If you have improved your cash flow, then you have either increased your income or decreased your expenses. If you have worsened your cash flow, you have either decreased your income or increased your expenses.
Estate: Your estate is the value of your projected assets and projected home equity, calculated for your stated life expectancy.
1. Run Scenarios on Your Longevity
There is a big difference between how much you need to retire securely if you live until age 75 vs living until age 95 or longer.
However, most comprehensive retirement calculators use average life expectancy and don’t let you deviate from that at all even though the average life expectancy is essentially meaningless to most of us. Half of us will live longer than average and half of us will not live that long.
When planning your retirement, you should probably use your best case longevity age — the longest you think you might live. You could also try a longevity calculator to get a more personalized estimate.
2. Run Scenarios on Inheritance Goals
Most retirees hope to leave something behind for heirs. A good retirement calculator will help you see what might be a reasonable expectation and let you set goals for an inheritance.
3. Try Different Options for Your Social Security Start Age
Most people don’t realize just how valuable waiting to start Social Security is to their retirement security.
If you have not already started your benefits, you should definitely look up how much you will get at different ages and plug those numbers into a comprehensive retirement planner. Most people are really surprised by how much the delay can positively impact your financial well being throughout retirement.
And, if you are married, try different starting ages for both yourself and your spouse. Additionally, you will want to look at what happens to your plan if the higher earner defers the start of benefits as long as possible up until the maximum retirement age of 70. Don’t focus on who is older. Or, who retires first. The key is to make sure the highest earner grabs the highest possible payout. This is probably the single smartest retirement decision married couples can make.
4. Run Scenarios on Retirement Age and Work Income
Most retirement calculators ask you to enter your “retirement date.”
However, retirement age just doesn’t mean that much anymore. The reality for most of us is that we either transition toward retirement by going part time or we retire and then get some kind of retirement job. Others take a break from work and then resume in some capacity a year or two later.
Instead of entering a retirement date, look for a retirement calculator that allows you to set different levels of work income for different periods of your life and play with those variables.
If not yet retired, you should also see what happens if you were to unexpectedly lose your job or not be able to work due to a health issue — both of which are fairly common scenarios.
5. Experiment with Investment Returns and Annuity Purchases
Investment returns is something many retirees are pretty worried about. Why not use a retirement calculator that lets you set returns for each account that you actually have? You should probably also play with different configurations.
What would happen to your overall plan if you were to:
Construct a bucket approach with one account invested aggressively for long term growth, another more conservatively and a third very conservatively.
Purchase a lifetime annuity to cover the difference between your guaranteed retirement income and your expenses.
Earn high rates of returns or low. (The NewRetirement tool enables you to set optimistic and pessimistic rates of return for each account. Be sure to try different ranges.)
6. Run Scenarios on Savings Rates
If you are not yet retired, it can be really motivating to model saving even just a bit more each year.
The NewRetirement system lets you set different savings rates for different periods of time. It can be interesting to experiment with when you might get a raise and adding all of that extra income or just a portion of it to your savings. Or, can you increase your savings rate by a certain percentage each year?
You can also experiment with saving to after tax or pre tax savings.
Be sure to also enter any times when you might be able to add a lump sum one time contribution to your retirement savings. Will you get a tax refund? Expecting an inheritance?
7. Run Scenarios on Expenses
Playing with different spending rates can be the best way to strengthen your financial future. Can you cut costs?
Consider playing with the following scenarios:
Try thinking in 5 year increments and estimate how much you might be spending in each time period.
Budget based on phases of retirement:
In the first phase of retirement, you might be spending more money than when you were working
As you get older, your spending may slow down
In late retirement, you may be spending much less than you are now on monthly expenses (though your healthcare spending is likely to spike.)
Predict big one time expenses. Maybe document money for a big trip, education for children, a second home or other.
Get really detailed about how much you predict to spend in different budgeting categories. (NOTE: The NewRetirement retirement planner will be introducing this functionality soon, but it is not currently available.)
Document just what you genuinely need to spend (not including wants).
Medical expenses are HUGE for everyone. However, there is no way to predict exactly how huge they will be.
Different retirement planning calculators have different ways of dealing with this. The NewRetirement system automatically accounts for average expenditures. (On average, Medicare beneficiaries aged 65-74 spend $2,920 a year in out-of-pocket expenses. Those aged 75-84 spend $3,815, a year. And, those 85 and above spend $4,615 a year – an average of 30 percent of their income.)
Having or planning to get Medicare supplemental insurance reduces these expenses and adds projected premium costs to your cash flow forecast.
However, we are in the process of giving users more control over this factor.
13. Try Out Different Inflation Rates
Like medical expenses, inflation can be a really big factor for your financial security.
Inflation is a term used to describe the increase in the general prices of goods and services. Inflation describes prices increases. For example: If a loaf of bread costs $1 and inflation is at 2.5 percent, then the cost increases to $1.25.
Over the last 50 years, inflation rates have ranged between a high of 13.5% in 1980 to a low of -.4 in 2009. You should definitely try different inflation rates in your plan and estimate how well you can weather highs and lows.
14. Assess for Excess Income and Accumulated Debt
When projecting income and expenses for 20 plus years into the future, it can be easy for these categories to get out of sync. You might have more income than expenses in some years and the opposite at other times.
The NewRetirement planning calculator let’s you accumulate this debt. You can also see your excess income and can decide how you want it applied.
15. Assessing Different Scenarios for a Long Term Care Need
According to the U.S. Department of Health and Human Services, long term care is required for at least some period of time by the vast majority – a full 70% – of people over 65. However, most households underestimate the costs of long term care and don’t have a good plan for this very big expense.
You should try out different scenarios in a retirement calculator for covering these costs:
Relying on a family member to help you
Purchasing long term care insurance
Using a deferred lifetime income annuity
Tapping home equity
Using up resources, then qualifying for Medicaid
About the NewRetirement Comprehensive Retirement Planning Calculator
The NewRetirement system is the most comprehensive retirement planning calculator. This detailed tool is designed for anyone who is worried about their retirement — especially people nearing the end of their careers or just beginning this stage of life. It is easy to get started, see a personalized assessment and find ways to strengthen your plan.
Best of all, your data is always saved so it is easy to try different scenarios, make adjustments and manage your finances moving forward.
Getting old. Getting really old. It’s not all fun and games. However, it is not nearly as dismal as you might think — assuming you follow a few guidelines. Furthermore, it can actually be enormously beneficial for you to think about growing old.
Contemplating your future as an old person can:
Help you create a better plan and make higher quality decisions now for that future.
Upgrade your experience in the here and now. (Usually if its good for your future self, then it is good for you now!)
Improve your ability to prioritize what is really important to you. (Thinking about aging and even about your own death is scientifically proven to help you re-prioritize your goals and values.)
Enhance your attitude toward aging.
Below are a few multimedia presentations that can hopefully inspire a positive, fun attitude toward what is going to happen no matter what — getting old.
How Celebrating Shabbat at Wendy’s Illustrates the Importance of Community
“Wendy’s Shabbat” is a documentary about a large group of 80-98 year old people in Palm Springs who get together every Saturday for an inexpensive but meaningful celebration. You really can not watch this video and not hope that you will have something similar when you get old — or even now for that matter.
Shabbat at Wendy’s is an incredibly modest idea with enormously meaningful consequences.
The movie drives home the point about the importance of friendships and a sense of belonging. As Roberta Mahler, 87, says: “Living by yourself and having a group like going to Wendy’s gives you a feeling of belonging. And, 97 year old Rabbbi Isaiah Zeldin (possibly the world’s oldest Rabbi) opines, “In Judaeism, ritual is what keeps the people together.” And, it is clear that this weekly ritual does bring a large group together.
What Interviews with the Very Old Teach Us About Happiness?
John Leland wrote a fascinating series of articles about being old. He figured that the stories would be about: “the fears and hardships of aging: a fall in the kitchen, an aching leg that did not get better, days segueing into nights without human contact. ”
However, what he found was something quite different. From Helen Moses (90) and her love affair to John Sorensen (91) and his love of opera, Leland discovered that when these older people described their lives they focused on what they could do, not what they could not do. They looked forward to little things. At 92, Ping Wong declared, “I try not to think about bad things. It’s not good for old people to complain.”
Getting Old? You Can Compete in these Olympics!
“Age of Champions” is a 2012 documentary about the people who compete in the senior olympics. From women’s basketball to pole vault, the very old have not lost their competitive spirit — nor their athletic ability.
How Your Grandkids (Or Even Friends Your Own Age) Can Keep You Vital Through Play
Stuart Brown is a pioneering researcher on the VERY serious topic of…. PLAY! In his thoroughly documented TED Talk, he makes the compelling argument that play is vital not only to positive development in children but is also a big part of being happy, smart adults.
Brown claims that the opposite of play is not work, but it’s depression. Keep playing!
Is There a Fountain of Youth?
The Ted Radio Hour is a podcast that brings together snippets from numerous TED Talks around a particular theme. In the “Fountain of Youth” episode, the following experts offer advice on living longer and better lives:
Dan Buettner shares the secrets of centenarians from around the world.
Aubrey de Grey talks about his research that is trying to prove that medical technology may enable human beings to live indefinitely.
Cynthia Kenyon explains what a simple genetic mutation in a worm might inform how to extend human life.
Harvey Fineberg talks about how technology may extend life.
Isabel Allende argues that you need to adopt a good attitude and just make the best of getting old.
If you hope to live to very old age, it is critically important that you create and maintain a strong financial plan for your retirement. The planning process can help you be financially secure. It can also enable you to imagine your future self and develop a positive attitude toward getting old.
The NewRetirement retirement planning calculator has received a lot of praise for being a highly detailed tool that asks questions you might not have considered. It’s easy to get started and create a plan that will hopefully take you to a happy secure old age.
Prepare to get old.... Look forward to it with a solid retirement plan
Investing in ourselves doesn’t need to involve money. In fact, many of the best retirement investments do not involve greenbacks at all. Instead, they are investments that use our time to the fullest, allow us to spend precious moments with the people we love, enable us to focus on those things that make us happy.
Investments in ourselves are more important than our finances — they are much more primal, touching on our most basic human needs of emotion, happiness and a feeling that we belong.
Here are 10 awesome investments for retirement that don’t involve stocks, bonds, mutual funds, savings accounts or any other financial product.
1: Spend Money to Save Time
Scientific research and common sense suggest that time is a hotter commodity than money. While money comes and goes, time just goes. It’s fleeting, and we tend to feel the passage of time more than we do the passage of money.
In fact, a study from the University of British Columbia and Harvard Business School has found that spending money to buy time is linked to increased happiness and greater life satisfaction.
For example, you could begrudgingly spend several hours a week mowing your own lawn and maintaining the landscape around your house. Or, you could pay a landscaping crew whose job it is to make a maximum impact as quickly as possible.
Buying extra time adds additional productive hours to our day. This time can be used to do anything, from catching up on the news, to managing a small business or spending time with your family or friends. In other words, time well spent.
Buying time is an investment in ourselves.
2: Invest in Friendships
At virtually any age, our friendships with other people are a huge component of our happiness. As living organic creatures, we naturally crave human companionship. It has been bred into us for centuries – isolation kills us. Friendships make us stronger and healthier people.
In a 2017 study, researcher William Chopik found that “people who placed more importance on friendship and family tended to say they were happier, more satisfied and healthier than those who didn’t.” The study also found that the older participants got, the more meaningful and influential friendships became in their lives.
Other research has found that loneliness is actually as dangerous for your health as smoking and stress.
Friendships give us a reason to get up in the morning. To meet at the local coffee shop. To talk and learn. To socialize. Friendships are a crucial part of making us well-rounded and productive individuals.
3: Focus on Your Future
There is wisdom in living in the moment. But, there’s also wisdom in thinking ahead and in planning for where life might take us in five or ten years. Our future plans not only give us purpose, but they also provide us with something to look forward to; a light at the end of the tunnel.
As we plan, we focus on our strengths as individuals and consciously think about our hopes and dreams. Remember that our future selves will one day become our present selves. Thinking ahead helps to ensure that we will like the people that we become. And, it puts into motion small habits and activities that we can do now to help ensure we reach our future goals. These goals might include saving money or practicing a skill.
Or, moving into our dream house by the ocean. Without an eye to our future, it’s tough to know what we should be doing today.
Setting priorities can help you alleviate stress and insure that you get what you really want. Sure, sometimes you might “feel like you want it all and you want it right now,” but that is not usually realistic — especially in retirement when you are dealing with a limited set of resources to last the rest of your life.
Priorities keep us focused on meaningful elements in our lives and help to ensure that the time we spend each and every day is efficient.
It is especially important for you to think about how you want to spend your time. If your family is your priority, make sure your lifestyle reflects this. Do you live near family? Do you communicate with them on a regular basis? (Try texting to keep up with the grand kids!) How else can you foster close relationships?
Of course, going hand in hand with prioritizing how you spend your time, is also setting priorities for your finances — how you spend money. Make trade offs like retiring early but spending less each month. Try different scenarios in a retirement calculator.
5: Look After Your Health
Staying healthy not only keeps us looking and feeling better, but it helps stave off expensive and painful illnesses throughout life. Fitness and exercise routines keep us active and energetic.
In fact, a study published by the New York Times said that if we work out regularly, we’ll save around $2,500 a year. In this case, “regularly” meant working out moderately for about 30 minutes, five times a week. “Those numbers included annual savings of about $400 on prescription medicines and far fewer emergency room visits and hospitalizations for people who regularly exercised.”
Added up, costs associated with living a sedentary lifestyle are enormous. “The study concluded that inactivity costs the world economy almost $68 billion annually in medical expenses and lost productivity.” The United States accounts for over a third of that – $28 billion.
To feel more productive and energetic, not to mention save a couple thousand dollars every year, consider routine exercise to be an investment in YOU.
6: Have a Purpose
Retirement is no fun if you’re without anything that makes you feel alive. A purpose not only gives us direction, but it also provides us with an incredible sense of accomplishment and confidence. Like our daily schedules at work, purpose helps us to tick the boxes in life, steadily heading in a healthy and deliberate direction that fills our lives with happiness.
Having a purpose also prevents us from slipping into depression, a phenomenon that plagues too many people in the world. When we get depressed, refocusing on our purpose rejuvenates us and gives us renewed hope and strength and a reason to grow.
7: Celebrate Small Victories
Setting goals and celebrating when those goals have been accomplished is a huge key to success.
However, celebrating small victories along the way is critically important to achieving your bigger goals. Teresa Amabile, Director of Research at Harvard Business School, conducts research that shows that tracking small achievements enhances motivation to keep going.
While your big goals can take weeks, months and years to achieve, celebrating a daily accomplishment can give you the motivation — a little jolt of energy — to keep going toward your big dreams. Celebrations give a reason to smile and, yes, maybe even dance or toast. They also help drive momentum and build confidence deep within us along the way.
8. Develop Gratitude
Things are not going to get easier as we get older. It is therefore that much more important that we are able to see the bright side of things and be grateful for whatever it is we have and not focus on what we don’t have.
Research on gratitude has found that it increases your well being. In one study, participants who wrote about what they are grateful for each day were more optimistic and felt better about their lives. They also exercised more and had fewer visits to physicians.
Dr. P. Murali Doraiswamy, head of the division of biologic psychology at Duke University Medical Center, says that gratitude has a positive impact on a wide range of mental and physical systems, including: mood neurotransmitters (serotonin, norepinephrine), reproductive hormones (testosterone), social bonding hormones (oxytocin), cognitive and pleasure related neurotransmitters (dopamine), inflammatory and immune systems (cytokines), stress hormones (cortisol), cardiac and EEG rhythms, blood pressure, and blood sugar.
Some people call it religion. Others refer to spirituality. Many psychologists refer to it as meaning.
Viktor Frankl, author of “Man’s Search for Meaning,” says: “Everything can be taken from a man but one thing: the last of the human freedoms—to choose one’s attitude in any given set of circumstances, to choose one’s own way.”
Psychologists say that an important metric of well being in older people is how they feel about their lives. Can you feel good about the life you led? Can you find meaning in the choices you made and continue to make?
One of the most celebrated poems of all time is “Sailing to Byzantium” by William Butler Yeats. This poem celebrates the idea that having meaning in your life can sustain you.
You’ve probably heard the standard money-saving advice: If you want to save money, eat out at restaurants less and cook at home more. But it’s almost as easy to blow your budget at the grocery store as it is when dining out. Stores use some crazy shopping tricks to make you buy more.
You know the drill. You stop in for a gallon of milk and leave with a bottle of wine, a bag of chips, and those delicious-looking chocolate cupcakes from the bakery. Grocery stores invest a lot of money into studying their customers and figuring out ways to get them to spend more.
If you want to reduce your grocery budget, meal planning and shopping with a list are important, but it’s also important to recognize the methods your grocer is using. Many of these tricks are used by your favorite department store as well.
Here are 10 tips for resisting their shopping tricks and spending less at the store so you have more for retirement.
1. Use a smaller shopping cart or even a basket
The size of the shopping cart has grown tremendously since it’s humble beginnings. What started out as a simple basket on wheels has grown tremendously, especially in the last 40 years. Today, the average grocery shopping cart is three times as large as it was in 1975!
That change isn’t all about convenience for the shopper. Marketing research uncovered that when you double the size of a shopping cart, people buy 40 percent more.
The next time you’re at the grocery store, grab a smaller basket. The smaller the basket, the less you can put in it, the less tempted you’ll be to make impulse purchases.
2. Wear headphones
Do you remember what song was playing the last time you were at the grocery store? Probably not, but you can bet your grocer knows what they’re playing and why. A 1982 study looked at the tempo of music played at a grocery store and discovered that fast-paced music caused shoppers to walk more quickly through the store, but slow-tempo music made shoppers slow down, giving them more time to take in the range of items on sale and make impulsive purchases.
Another study looked at the differences when stores play well-known tracks compared to unfamiliar music. Researchers found that people listening to recognizable music spent nearly 8% less time shopping than people who heard unfamiliar music. The type of music matters as well. When classical tunes are played, people spend more on wine and tend to purchase more expensive brands than when top-40 chart music is played.
Bring your headphones to the store and play your favorite pop songs. You just might make it out of the store in record time with a lower bill to boot.
3. Bright stickers don’t always signal a bargain
Shoppers love a bargain and they’ll often look for brightly colored stickers indicating an item is on sale. But be careful – a bright color doesn’t always mean a better deal.
Grocers know that putting a big neon sign next to something will light up people’s brains, even if they’re not getting a great deal.
Making matters worse, many grocers will put out a sign indicating a sale item, but place it next to a different size item that’s not on sale. For instance, if 8 oz. blocks of cheese are on sale, the sign may be placed between the 8 oz. and 16 oz. blocks. Many shoppers will see the sign and grab the 16 oz. block, assuming it’s on sale, only to pay full price at the register.
To avoid getting duped by dubious sales, look at the regular price when you’re shopping, not just the brightly colored sales sticker. Make sure the “deal” is really a good deal, and make sure the product you put in your cart is really the one you think you’re buying.
4. Avoid “free” samples
As you wander through the grocery store, you may be offered samples of wine, cheese, frozen appetizers and hot pizza. The store would love it if you buy the product you taste, but that’s not all they’re after. Writing for Forbes, marketing consultant Roger Dooley says food samples “create a halo effect that makes you feel good about, well, everything!”
He describes research that found when people leaving a supermarket were asked how they felt about their home television set, shoppers who’d received a free food sample felt better about their TV than people who didn’t get a sample. Stores set up free sample kiosks around the store, hoping the burst of positivity you get from the free food will carry over to the other products in the store.
To avoid falling into the free sample trap, eat a snack about an hour before you go. You’ll be better prepared to resist temptation.
5. If you’re feeling nostalgic, be wary
Poet Maya Angelou said, “At the end of the day, people won’t remember what you said or what you did, they will remember how you made them feel.” That’s a sentiment grocery stores bank on every day. Emotional messages are more effective and more memorable than rational messages.
Product packaging has picked up on this trend, using classic prints, patterns, fonts and color schemes to give products a retro look or evoke memories of beloved friends, family members and pets. It’s no accident. Research shows that nostalgia makes people value money less and feel willing to pay more for purchases.
Become aware of this emotion while shopping. Is that brand of butter actually a good deal, or does the packaging just remind you of pancake breakfasts at grandma’s house when you were a kid?
6. Know when a deal is really a deal
Smart shoppers plan their shopping trips around what’s on sale, but that information isn’t always in your store’s circular. Some stores mark an item up before marking it down or advertise items in the weekly circular that aren’t really good deals. It’s easy for shoppers to fall into this trap because it’s nearly impossible to keep track of the prices on the hundreds of items you buy on a regular basis.
Since you probably buy the same handful of items week after week, grab your receipt and start compiling a price list for the products you buy on a regular basis. You can do this on a spreadsheet or with a small notebook. When you see your favorite items on sale, you can consult your price list to determine whether the advertised price is really a good deal. If it is, you can stock up knowing you’re getting the rock bottom price.
7. Go in Prepared and with a Purpose
If you know what you need you are less likely to fall prey to an impulse purchase.
8. Use Cash
Research has found that people are more willing to spend a bit more on a credit card than with cash. Cash also has the extra benefit of being finite. You can carry $50 into the store and know that you only have $50 to spend.
Furthermore, if your bills are crisp and new, you are probably less likely to spend them vs. old crumpled money.
9. Comparison Shop and Use Coupons
Technology really can be your friend. Here are a few online resources you can use to make sure you are getting the best price:
Search for Specific Discounts: If you are planning on buying something at a specific retailer, do a quick internet search for coupon or discount codes for that store. For example, if you are going to buy something at Kmart, search for “Discount codes for Kmart” or “coupons for Kmart.” You will likely find an array of offers that will immediately save you money!
Comparison Shop:Pricegrabber.com is a site that enables you to compare prices for specific items across a variety of retailers.
10. Try the Walk Away
If you are tempted to put something in your cart that you don’t REALLY need, make a mental note of it. When it comes time to go through the check out, ask yourself if you still want the item, if yes then go get it.
If not…. then you’ve just saved yourself a few dollars. Now remember to use that saved money wisely!
Grocery stores aren’t nefarious masterminds out to steal your money. They’re just businesses who want to give customers an excellent overall experience and keep them coming back for more. As long as you’re not blowing your budget on impulse buys at the supermarket, enjoy the free samples, mood music and rewards the stores offer to make you a loyal customer.
But recognize the tactics they use to spend money you weren’t planning on parting with. That’s just being a smart shopper.
Retirement Plan Budgeting: See how changing shopping habits can impact your retirement plan