Tag: Financial planning

Retirees Spend 80% of Their Income in These 5 Areas | How Do You Compare?

user 0 Comments May 9, 2023 Retire Wealthy Retirement Planning

in this video we discuss five areas where retirees spend 80 percent of their funds and how to reduce the costs in these areas coming up next on holy Schmidt on average retirees spend 80 percent of their funds in five distinct areas of their life what's really interesting though is when you look at these five areas it's reasonably simple to reduce the costs in most if not all of these without reducing the consumption or the enjoyment of the person in retirement in fact sometimes all it takes is a bit of awareness and the cost is gone forever and the retiree doesn't know the difference that's not always the case of course but in this video it will be the case because we're going to talk about things that are simple and easy to execute painless in many ways so next we're going to go through these five areas and I'm going to go through step by step how to cut the costs in these areas and we're going to do it very very quickly and just to be super clear I'm not going to ask you to reuse your coffee grounds buy your clothes at the thrift shop or walk 10 miles to the grocery store like I said we like things easy on this channel so we're going to work smarter not harder and we're going to free up a lot of money a lot along the way the data we use in this video comes from the Bureau of Labor Statistics consumer expenditure survey from September of 2022 so it's quite current the BLS data shows that the average retirement household spends 4 345 dollars per month and 81 percent of the spending comes from these five areas your actual amount may be higher or lower depending on your retirement aspirations and your retirement planning but the bottom line is if you break it up it's going to be about 80 percent more or less no matter how much you're spending if you are like most people the first thing I'm going to do is ask you to suspend disbelief on one particular thing and that is that cutting costs equals pain or uncomfortable actions in many cases it doesn't it's just an awareness thing as I've pointed out before the fact is if it does cause pain it either leads to a grumpy existence or you're going to give up and as I said I don't want you to give up I want you to succeed in retirement and this will help you help yourself so think of this as a game and any choice is the right choice as long as a it reduces your costs and B doesn't change your enjoyment of your retirement your reward for playing the game is that you will have a stack of money at the end of every month the better you are at the game the bigger the stack one final note this video is how to reduce your own costs in retirement not costs that somebody else pays for or that you get for free for example if you live near a major university oftentimes the university will allow folks that are in retirement to audit the class for free no college credit but it's a two thousand dollar class or more and your cost might be a hundred dollars that's the cost for the book so the total cost for you is a hundred dollars not twenty one hundred dollars I'm gonna go through these from the lowest expenditure to the highest expenditure number one being the lowest and number five being the highest and one final point if you were to guess category number five right now many of you would guess the wrong category believe it or not not so write down what you think category number five is and check me at the end all right let's go but before we do please consider liking this video so that others can find the video here on YouTube YouTube uses the number of likes in its algorithm to put a video up in the search results and I want to help as many people as possible in return here's a clip a mini clip of my assistant miles working hard on the script for this video the first category is entertainment the Bureau of Labor Statistics says that the average household spends six percent of their income on entertainment every month that's 240 dollars two hundred forty dollars and seventy five cents actually many activities are free or drastically reduced retirees and retirement that's the way the society has arranged things think about the university example that I gave just a few minutes ago there are literally hundreds and hundreds of businesses that do this because it doesn't cost them anything there are also areas that you can arrange yourself like Sunday dinners with the family switching houses from Sunday to Sunday game night or tennis at the local Municipal tennis courts for example although this is in a big dollar area the impact can be a big percentage of that smaller dollar amount if you just put a little forethought into what you're going to do next the next category is food food represents 12 percent of the average retirement household spending that's 540.38 there are three very easy ways to reduce the costs of groceries without reducing the quality of the food or the amount of the food that you receive none of these require coupons or store sales remember I said that this video is about making things easy couponing is not easy you actually have to cut them out or find them we want to make it simple so that you'll actually follow through but there is one really important statistic that you need to know about groceries statistically you will throw out between 30 and 40 percent of all of the food that you buy at the grocery store one third over one-third actually so the focal point is not getting your food for less although I'll show you how to do that in example number three it's going to be how to consume the food that you actually buy in totality step one is to use a list this is the tried and true method everybody talks about it but I will tell you when I go to the grocery store I seem to be the only one with a list so using a list will help you not buy excess it will help you not buy double on certain items now you say Jeff I never buy double let me ask you a question if you've ever been to the hardware store have you ever bought a hammer how many hammers do you personally own this is a hammer I bought the other day it has a great Hickory handle a hardened steel head it's a wonderful Hammer it's very light and can get the job done when I got it home I put it in my tool chest right there next to three other hammers that look just like it the fact of the matter is people think that two of something is okay because eventually they'll get around to using both but when they get around to the second one it has either expired or they've changed their mind shopping with the list means that you'll be less tempted to buy things that you don't necessarily need and just throw something in the cart because it looks good on the fly but here's the downside of the list it's the single most dangerous part of a list you may be able to buy the right things but you buy them at the wrong time or the wrong amounts and so therefore you buy food that still expires before you can use it and unfortunately the most expensive food is also the food that expires first think about things like sliced meat fruit vegetable Bagels if you like to get fresh Bagels For example just I'm thinking about my own list from today and of course grocery stores now have prepared food so that if you want to buy an entire meal you can and it's available to you to reheat at some point in the future but here's the problem with all that after three days that type of food everything on that list starts to become questionable in your refrigerator after five days it's time to throw it out so that brings me to point number two and it's actually quite a bit of fun if you like to shop then go to the grocery store more frequently and buy less every time that you go instead of buying a dozen bagels buy two instead of buying a pound of deli meat by a quarter of a pound oh and how to use your list in this situation separate it the top half is perishable food the bottom half is staple food and number three the way to save money on the exact same purchases Buy store brands now before you say uh I hear you but listen because this is super important have you ever been to Whole Foods Whole Foods has basically their own store brand and that's just about it it's called 365.

In fact if you go to Whole Foods there's a tagline that people use for Whole Foods I'm not sure if Whole Foods put it out there someone else did it's called splurge and safe now I'm sure you know that Whole Foods doesn't manufacture all of the product themselves they private label all 3 500 items that are under the 365 brand or most of them largely all of them actually but if you talk to the average person who shops at Whole Foods they don't talk about saving money they talk about how great the food is it's organic they get me because they don't do this this or this the way that they package and Market their own products and services the Whole Foods 365 brand is a super brand it's like buying jewelry at Tiffany you may be able to buy the same thing someplace else for far less money but you're buying it at Tiffany while you're buying your food at Whole Foods it's the subject of many conversations the store bag the reusable Store bag oftentimes sits on countertops because it's a display of who you are as a person if you shop at Whole Foods and most importantly the people that shop at Whole Foods generally feel great when they're eating the food they think that they've done something really wonderful for their family and because it's organic they probably have so why do people feel really good about buying private label at Whole Foods but feel kind of funny about buying private label at a store like Stop and Shop well that's a good question because when you buy a private label at Whole Foods you're not buying it to save money you're buying it to get organic when you buy private label at Stop and Shop you're buying it to save money it doesn't feel good when you're buying it or when you're eating it even though private label is generally in fact almost always the exact same great manufacturer as the Branded label products that are out there it's the exact same product in the exact same packaging with a different label and it's right there in every category fresh frozen refrigerated canned non-food items like medicine for example at least over-the-counter medicine are world renowned for having their product placed right next to the exact same product with the exact same manufacturer side by side the difference the label store brands will save you 20 to 25 percent off of the same exact product usually made in the same exact Factory the fact is most people cannot tell the difference but there's one huge exception to this Rule and that is if you are a couponer or super couponer meaning you use coupons and you use those in conjunction with a Store flyer you can save a lot more money by doing it that way if this is your household and this is an obsession with your household it's virtually impossible to beat the one-two punch of couponing and store flyers if you do it right this is particularly true if you buy in bulk you use multiple coupons you buy more than one newspaper on the weekend just for coupons for example but remember what I said this video is about making things easy and that is the opposite of easy so for this video let's stick with purchasing private label product because it's easy how do you know who manufactured the product that you're buying well oftentimes the store will make it easy for you they'll put their product in the same packaging next to the other product and the packages are identical except for the label it would be very hard for a store to have the same exact shape size and let's say plastic content of one package compared to another without actually having it come off the same line if there isn't a side by side comparison oftentimes the label itself will tell you it might say manufactured by General Mills in you name the city and for those of you who are like me if you want to geek out about this stuff there's a website called the private label manufacturers Association I'll put a link to the website in the description below so that you have it there's a lot of really really good information that you can go deep into if you really want to Remember at the beginning of the video I said that there's one category that most people will guess is the most expensive category but they'll probably get it wrong this is that category it's health care a lot of people say that they spend an exorbitant amount of money in health care in retirement now don't get me wrong 13 which is the number 13 585 dollars is the average monthly spend on health care that's not a small number but when I think of someone who says that they spend a tremendous amount of money in health care oftentimes what comes to mind is that they're paying for a lot of the procedures themselves the average is 13 for a household 585 dollars by the way this is broken down into prescriptions co-pays co-insurance services that are higher than usual and customary and unusual treatments that aren't necessarily covered by Medicare or some of the supplements out there so how do you reduce costs in this area well the very first thing to do and this is super intuitive but you get so many people are Pennywise and pound foolish in this area buy the Medicare supplement or the insurance if you're not ready for Medicare yet they actually fits your needs don't buy a high deductible plan if you know you're going to have a lot of claims generally people know when they're going to utilize a health insurance policy because they have been doing it their entire life other people it sneaks up on them but if you're worried about having claims not covered bring the cost of your deductible down and also choose a plan that has co-pays instead of coinsurance these are generally HMO type of plans or PPO type of plans some plans cover foreign travel emergencies for example if you travel a lot that might be something you want to make sure you have on your health insurance plan next category is drugs I would be remiss if I didn't tell you that prescription drugs that are generic cost 20 to 70 percent less than their branded competitors and buying them online is far less expensive than buying them through your local pharmacy some plans cover prescription drugs others give you a big discount if you buy generic versus regular just make sure that you know which is which and in conjunction with that the next piece of advice is study your health care plan and know what it pays completely nine out of 10 people do not know what is covered on their health care plan not even the percentage of the co-pay or the co-insurance on the service that you are receiving and the problem is if you're not looking out for it the insurance provider won't either most of the time so for example if you submit a claim with the wrong code and they deny it sometimes field is never resubmit again they just pay it out of pocket which is a mistake insurance companies routinely pay the wrong percentage and sometimes just deny claims altogether as I mentioned before but being on top of what is due to you will save you a lot of money on health care and under Health Care understand the difference between an inpatient treatment and an outpatient treatment because there's a huge cost difference and sometimes that costs rules down to you last week I spent the night in the hospital for something that turned out to be nothing fortunately when it came time for the decision to be made I didn't fully understand why I was overnighting in the hospital and you would have heard me Mumble some things under my breath as they were Wheeling me upstairs still the emergency room doctor said you need to spend the night the next morning the doctor on duty came in she gave me a clean bill of health and sent me on my way as you get older undoubtedly you will need medical attention from time to time knowing this in advance means that you can plan for it and keep costs down when you have a pre-planned treatment know the difference between inpatient and outpatient and what the cost difference is to you when it's an emergency as it was for me sometimes you don't have a choice but know your options because sometimes you need to overnight and sometimes you don't along those same lines pre-plan your doctor visits Urgent Care visits and emergency room visits now you say how can I pre-plan an emergency room visit it's very simple if you know which emergency rooms take your health insurance with a modest deductible or copay and which ones don't choose the ones that have the modest copay unless you think the treatment is going to be better at a different Center of course and just for completeness I'm going to talk about the health savings account because there's a lot of discussion about the triple tax advantage of one yes it is triple tax advantage going in in and coming out each are done in the most tax efficient way but notice if you have an HSA this means that you have chosen a high deductible health insurance plan and this is great if you don't have claims but the minute you start having claims if you haven't built the cushion in your HSA you're going to be paying those out of pocket Transportation comes in number four at 14 592 dollars this category includes things like your car payment your insurance fuel for your car public transportation meaning buses trains and Subways Etc we'll focus on the most common one here which is your car because this is where you can have the biggest impact in terms of savings the first point to note is that the cost of the fuel for your car can be exorbitant or can be reasonable well in this day and age probably not reasonable but the min max is going to be huge depending on two and only two variables what are the local taxes on fuel and what is the mindset of the owner of the gas station here are two photos that I took this morning at two different gas stations 10 minutes apart the difference is massive and they're both high quality stations one's a shell and one's a mobile you can see that across all categories from regular all the way to premium fuel the difference is at least two dollars if not more per gallon if you have a 16 gallon gas tank can you fill up your car weekly that's 32 dollars per week every single week for me the time difference is worth it the two stations are 10 minutes apart so I always drive to the far station unless I have no choice and have taken it too far my tank is almost empty for those of you that don't know the best prices in your area because it changes from day to day hour to hour sometimes there's a wonderful app called GasBuddy and this is a user driven app meaning when you pull into a station and you look at the price you punch it in or someone punches it in so that it has up to the minute data about what that station is charging of course it's worth noting that stations that charge high prices like say 6.99 a gallon for premium gasoline won't exactly be falling all over themselves to input that information themselves so the users of the stations are the ones that have to do it but the good news is that if the price is exorbitant there's a very good chance that someone will be so upset that they enter the data in the gas buddy in fact many people will be so upset that they enter the data in the gas buddy conversely if it is a bargain if you want to use that term in this day and age they will equally be motivated to enter that data so GasBuddy is a great app and it's absolutely free the next category is insurance let me start off by saying that not all insurance is equal some companies pay claims very well others pay them very poorly they have a very low what's called usual and customary the second type of company will present you with a low ball option in terms of their settlement if you agree you've then settled for a number much lower than your actual cost in many cases some will hold your hand through the entire process even give you a list of preferred vendors so that you don't have any shock costs that you didn't see coming others will tell you you're on your own and then submit the claim and we'll see how you go before you even get into price spend time looking at complaints on the names the insurance companies that you're considering the good news is that we're in the day of the internet so it's pretty easy to find the top 10 insurance companies in category X or the worst 10 in category X once you've done the research and you know which are the good companies and which are the not so good companies then you start Gathering prices and the way to do this is you compare prices as a package and individually for example you can combine your homeowners insurance and your car insurance in many cases and get a discount other times it actually pays to break those up with different companies also let your carrier know if you're retired that you're not driving to work every day because often they charge you your premium based on the amount of miles that you drive if you're talking about automobile insurance gently used cars are generally better than new cars this is because when you buy a car it depreciates quickly but it ages slowly so when you buy a car that's largely depreciated or has had a big depreciation bump but yet has 80 percent life on it you're going to get a great deal and most importantly similarities don't even need cars and in that situation renting an automobile when you need it makes a lot more more sense than owning one for example if you live in New York City you'll probably pay something like this for a car you'll have a car payment that might run 500 a month you have insurance on that car in New York City that might run 300 a month and you have parking costs for that car that might run 500 a month the cost to own that automobile is thirteen hundred dollars a month before fuel the math is probably the same for places like Boston San Francisco and other major cities where you live in the city center if you don't drive regularly and you live in a special situation such as this consider renting rather than owning and you'll save a lot of money I will note though that if you rely on your credit card for insurance and a lot of people know that you can actually get collision insurance on your credit card there are some pretty significant limitations and you should know what those are for example the American Express green card has a fifty thousand dollar Collision limitation it has a 75 000 limitation on the Platinum Card the difference between the two might be the reason to upgrade to the platinum card if you're considering one versus the other it also pays to know what's covered and what's not Beyond just the dollar amount for example if you have a car and you have insurance you lend a friend a car they are covered by your insurance usually if you lend a friend your rental or your spouse or a family member and they're driving and they're of age and you get into an accident most of the time your credit card company will not pay for the damage that they were part of and the single most expensive Area Housing that's number five as I said at the beginning of the video a lot of people would have thought that Healthcare was the single most expensive category simply because of conversations they might have had with other people but remember the college example that I gave somebody pays for it but not you in this case if you have insurance the insurance company is going to cover a lot of the costs Medicare Medicare supplements Etc so even though you may go through and spend several hundred thousand dollars in retirement on medical costs most of that is covered elsewhere housing represents fifteen hundred seventy three dollars or thirty six percent of the average retirement households monthly spend this number includes things like a mortgage payment if there is a mortgage payment May maintenance electricity gas Etc how do you reduce this well let me begin with the one that everybody talks about but is virtually impossible to action at least at a point in time and that is to pay off your mortgage it is true without a mortgage you don't have a mortgage payment and that can be a very big number in retirement but and this is a huge but if I was to say to you today if you have a mortgage okay go out and pay off your mortgage and you'll be good to go most people couldn't actually do that without doing something like liquidating their 401k and even then they might not be able to accomplish that task paying off your mortgage solves a lot of problems it's a great goal but let's assume that you can't do it at a point in time but you're going to have to do it over a period of time and let's focus on the easy wins on this video if you want your housing costs to go down first of all you can move to a smaller home this automatically reduces consumption your utility bill could be should be less assuming that everything else is equal your maintenance and insurance should be less and the upkeep of your house should be less if you want to bring the cost down further research low-cost areas outside of your hometown there are a lot of towns in this country that are far less expensive than where you live today more than likely and if you really really want to reduce your costs you can leave the country there's a lot of benefit to doing this for example if you go to Costa Rica or other places around the world the cost to live there are a fraction of what they are here in the United States but let's assume that you don't want to leave your town another option is to move into a community of 55 plus at some point you'll probably do it anyway at least you'll certainly consider it a lot of the costs associated with maintaining everything from Landscaping to Mechanicals within the broader Community are covered by a homeowner's payment you're spreading that cost amongst 40 50 60 hundreds of different families in many cases and that makes your cost go way down but let's say that you don't want to do any of that you want to stay exactly where you are well at the very least talk to your town your local municipality the place where you pay your taxes and let them know that you're retired and you won't be using the school system more than likely and they in turn may give you a break on your local taxes and if you're entering retirement and you have an older home just make sure that all of your appliances are up to date and everything from your air conditioner to your heating unit is cleaned modernized a roof of course as well as the other related items that you have to pay for in their big ticket not only will new appliances save you money on your utility bill but also you won't have repair bills at least for a while now you'll notice this video is a little longer than most of my videos most of my videos are somewhere between 6 and 12 maybe even 15 minutes that is because this video has a lot of information that is really powerful so if you know someone that needs this information there's a forward button at the bottom of the screen make sure you click forward and send it on to them you can do it in so many different ways also check out my video from a few weeks ago on 10 ways to completely blow up your retirement it's turning out to be one of my most popular this is Jeff Schmidt thanks for watching

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