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This Move Could Rescue Your Retirement

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Saving for retirement is one of the biggest financial challenges you'll ever face. When you're still working, you (hopefully) bring in a big enough paycheck to provide for all of your needs and then some. Yet on that fateful day when you retire, you'll suddenly have no paycheck at all -- and years of expenses staring you in the face.

The challenges of trying to plan for your retirement finances are tough enough that many workers are just skipping the idea entirely, figuring that they'll just work forever. But giving in to despair just doesn't make sense, because even though it's tough, you can still make a strategy for your golden years that will work. Below, I'll even share one thing you have going for you that you might not have realized -- and some of the investing ramifications it holds.

Slowing down
In this month's issue of Rule Your Retirement, Fool retirement and personal finance expert Robert Brokamp takes a look at the math behind saving enough to retire. His first point is the obvious one: With so many unpredictable factors to take into account, the quest to find a "magic number" to target for your nest egg is an exercise in futility.

But one area in which you may have some flexibility is on the expense side of the equation. Although many financial planners suggest that you may need 70%-80% of what you were making before you retired in order to sustain your standard of living, the statistics don't actually bear that out. Here are some highlights comparing what 65- to 74-year-olds spend in certain categories versus what 45- to 54-year-olds spend:

  • Eating out: 32% less.
  • Transportation costs: 34% less.
  • Apparel and services: 40% less.

Moreover, that doesn't even include some of the big-ticket areas. With income reduced, taxes get cut by two-thirds, and contributions to Social Security and pensions fall even more dramatically. All told, expenses are almost 30% less -- and those numbers fall even more quickly for those age 75 or older.

What this means for stocks
Given the big demographic shift that the nation is going through right now, these figures have some long-term implications that investors should consider. Although many investors have jumped on the health-care bandwagon as a way to play an aging population, some other trends may be less followed:

A population that eats out less would have a negative impact on mid-range restaurants, especially those that cater to older clientele. That means Buffalo Wild Wings (Nasdaq: BWLD  ) , which aims at a younger demographic, might escape the trend, but Darden Restaurants (NYSE: DRI  ) and its Red Lobster and Olive Garden chains could see stronger headwinds. On the other hand, as lower-priced eateries, McDonald's (NYSE: MCD  ) and its fast-food peers could well benefit from the shift.

The problems that Talbots (NYSE: TLB  ) and Coldwater Creek (Nasdaq: CWTR  ) have faced recently are only likely to continue, as the customers they've relied on move on to retire and need fewer clothes.

What this means for you
But, investing aside, what these figures suggest is that you may not have to save quite as much for retirement as you might have thought. As a result, even if you're going to fall short of whatever number your favorite retirement calculator spits out, you shouldn't lose hope. With some adjustments to your spending, you might well be able to make ends meet on far less.

Of course, not all costs go down in retirement -- and you can't control all of your spending. Health-care costs in particular rise dramatically as you age, and they're often not negotiable -- and not something you can safely avoid. That's why you still need a healthy nest egg.

But the good news is that if you're been afraid that your retirement is doomed from the start, adjusting your cost assumptions may give you a more realistic picture of what your retirement years will be like. If that makes you more optimistic about your chances, then that will only help you to follow through on your retirement planning.

The right investments can make a huge difference in how you live your golden years. In The Motley Fool's special report on retirement, you'll find revealed the names of three promising stock picks for long-term investors. It won't cost you a thing, but don't wait; get your free report today while it's still available.

Fool contributor Dan Caplinger gets closer to retirement every day. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Buffalo Wild Wings. Motley Fool newsletter services have recommended buying shares of Buffalo Wild Wings and McDonald's, as well as writing covered calls on Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy never retires.


Read/Post Comments (34) | Recommend This Article (82)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 12, 2012, at 3:00 PM, TheRealGlaird wrote:

    Yes, all the expenses listed will shrink, when one isn't earning a paycheck. But, your health costs will go right through the roof. Especially, if you are forcibly retired before you reach 65. My example alone: 2 adult household. Ins: $1800/mo., Everything medical that is conveniently not covered by that expensive insurance: ~$30/year. Property tax on that home I paid off: $4200/year. Groceries: $500/mo.

    I have yet to meet a 50+ year old who has not been forcibly retired.

  • Report this Comment On April 12, 2012, at 3:01 PM, TheRealGlaird wrote:

    Edit: Medical expenses not covered by insurance: $30K/year.

  • Report this Comment On April 12, 2012, at 6:21 PM, techfocus11 wrote:

    Nice article. But one item I rarely see taken from the expense column for retirees is the money one would usually be spending on a mortgage. Most seniors I know have had their homes paid off before they retired, and that's a big expense for us working Joes. Take that out of the equation, and the monthly expenses - even with increased medical - might not be as bad as some estimate.

    On the other side, social security - at least as things are shaping up at this point - might not be around for us when we get there. So don't count on any help from the government!

  • Report this Comment On April 12, 2012, at 8:09 PM, pizzapazza wrote:

    Hello

    I have a comment

    regarding seniors retired it won't be healthy for them eating at fast foods

    especialli chicken wings are you kidding me? the colesterol will go higher

    Senior citizen should eat low fat food better yet cooked at home save more money

    so I will move my interest in the healthy foods stock after all we are all healthy concerned the info is out there plus cost less eating at home

    I am 52 female do my own hair color, cut my own hair do my own manicure I do not buy much clothing like I used too

    so when I retired it wont bother me at all

    but I buy healthy foods

    got the point you FOOLS ??? LOL

  • Report this Comment On April 12, 2012, at 10:24 PM, VegetableFool wrote:

    "This move could rescue your retirement". I'm kind of used to it but there really isn't any relationship between the article and the title. It worked, I read it. They should have called it, naked girls direct to your house.

  • Report this Comment On April 13, 2012, at 2:03 AM, thedubliner wrote:

    oh come on, if after years of work i had to go to MCD to eat, i would consider my investment plan a total failure!

  • Report this Comment On April 13, 2012, at 7:32 AM, TMFGalagan wrote:

    @VegetableFool -

    I'm not sure what you mean. Cutting your cost expectations is the move that could rescue your retirement.

    best,

    dan (TMF Galagan)

  • Report this Comment On April 13, 2012, at 8:05 AM, 38407rrb wrote:

    FIRST10 YEARS AFTER RETIREMENT CAN REQUIRE THE SAME AMOUNT OF PRE- RETIREMENT INCOME BECAUSE THEY NOW HAVE TIME TO DO ALL THOSE THINGS THEY HAVE ALWAYS WANTED TO DO, IE TRAVEL, GOLF, FISH. THE 65 YEAR OLDS TODAY ARE MUCH MORE ACTIVE THAN THE 65 YEAR OLDS OF YESTERDAY. MEDICAL COST WILL BE A HUGE EXPENSE IN LATER YEARS.

  • Report this Comment On April 13, 2012, at 9:00 AM, stephanieevans1 wrote:

    I agree with 38407rrb. If you are less that 65, medical insurance can be $1000-1300 per month for a healthy couple. Expenses continue to rise some a baseline retirement number. Most investments and nest eggs lost 20-30% in the 2007-2009 period that has not been recovered.

    Figure what you need in retirement and add a 20% cushion.

  • Report this Comment On April 13, 2012, at 3:20 PM, lovesdos wrote:

    i am 84, i am full-time employes, i wear a shirt and tie to work, i have not puchased any item of clothing in maybe 10 years

  • Report this Comment On April 13, 2012, at 8:23 PM, WineHouse wrote:

    My husband and I retired in 2008. We spend as much today as we used to spend when we were working -- BUT we spend the money ON DIFFERENT THINGS! No more dry cleaning bills, because we don't wear go-to-work clothes any more, just wash-and-wear. No more eating lunch out so we can go out to lunch with our co-workers. No more commuting expenses between work and home.

    But now we have more time to do all the things we wanted to do before but couldn't because our time was eaten up by our work. We are travelling more, and to more exotic places (ever hear of a bucket list?), and this time the airplane tickets are on our own nickel, not our employers' (we used to tack vacations on to legitimate travel-for-work travelling, just taking an extra week in the same geographical area, wherever that might have been). We are spending more time shoping for the food we plan to cook for dinner, and -- um -- purchasing that food at higher-quality (= more expensive) grocery stores and fresh- fish markets. Hubby spends more time playing competitive bridge at tournaments, and that costs money (especially if the tournament is a "national" event that you need an airplane ride to get to). I spend $$ and time messing around with wet clay and glazes, something that I've been yearning to do since I first played with "real clay" in fourth grade. Overall, our expenses are remarkably -- frighteningly! -- the same now as they were when we were working. Fresh fish costs as much as dry cleaning, I guess. The point is, you have to take your intended "life-style" into account when counting your retirement pennies. If you plan to veg out and do nothing, it might not cost much. Most people, especially those who were hyperactive at work during their working years, have a lot of living and experiencing to catch up with. And that can cost money.

    There's no such thing as "one size fits all." And I suspect that a retired person, or couple, will match their activities to their retirement income.

    SO -- the more you save while you can, the more you can do in retirement before you can't any more.

    Isn't that a good reason to save?

  • Report this Comment On April 13, 2012, at 8:24 PM, WineHouse wrote:

    I'm not illiterate, just impatient. E.g., I know that "shopping" has two "p's" ...

  • Report this Comment On April 13, 2012, at 9:15 PM, gray27wolf wrote:

    What is NFC?

  • Report this Comment On April 13, 2012, at 9:17 PM, gray27wolf wrote:

    Is it important to know "NFC"?

  • Report this Comment On April 15, 2012, at 7:49 AM, oberta wrote:

    It is better and more useful to set up a pensionfunds which is funded by the common workers.These will pay a monthly premium.

    The pensionpaymens are settled by the direction of the funds and company.

    The system works very well in the Netherlands.

  • Report this Comment On April 19, 2012, at 5:34 PM, TMT33 wrote:

    It should have been titled "Lower Your Expectations and Retirement Will Be a Breeze"

  • Report this Comment On April 20, 2012, at 11:00 AM, Dmcc101 wrote:

    Reduce your mortgage . Save as much as you can.

    Eat out less but eat better foods. It probably will zero out but you will be healthier.

  • Report this Comment On April 20, 2012, at 11:39 AM, JOHNAFRANKLIN wrote:

    So the move to "rescue your retirement" is what?

    Cut expenses and eat at Buffalo Wild Wings and McDonalds, thereby spiking cholesterol so you die before the money runs out....

    Foolish indeed.

  • Report this Comment On April 20, 2012, at 11:43 AM, ajschloss wrote:

    Instead of criticizing the article, see what you can get out of it. No article just like no retirement planning will fit all.

  • Report this Comment On April 20, 2012, at 11:46 AM, evodad wrote:

    Always nice to see how high on the agenda health insurance is for our cousins in the USA, as for me in Britain the only cost for me will be if I end up in a home for the elderly, not the cost of treatment by our world beating National Health Service.

    As for fast food, the more you eat the more you will need the Health Service I think.

  • Report this Comment On April 20, 2012, at 12:03 PM, rbrown00 wrote:

    Obviously those who think the article suggests eating fast food as we age aren't reading carefully: The point is that the fast food restaurants' stocks should continue to do well as we see a sift in demographics of casual diners (from mid-range to lower-priced venues). This wasn't a comment on diet, but on stocks!

  • Report this Comment On April 20, 2012, at 12:41 PM, krustallos wrote:

    It's all very well to say older people spend less, but if the reason for that is that they don't have enough money it's not actually very comforting information, is it? I'd rather like my retirement plan to enable me to spend MORE than I do at present, particularly since I shall have more time on my hands.

    Incidentally health care is not an issue for me since I live in the UK and we have the wonderful NHS, free at the point of use and no insurance company profits and lawyer fees bloating the cost.

  • Report this Comment On April 20, 2012, at 12:46 PM, mstick99 wrote:

    one has to keep in mind that the expense summaries provided are based on the generation that grew up during the Depression. future spending habits of those starting to retire, the baby boomers, could be very different. at one time everyone thought that as the baby boomers grew older that they would all be switching from kids beverages (ie soda) to coffee -- which didn't turn out to happen.

  • Report this Comment On April 20, 2012, at 12:59 PM, DJDynamicNC wrote:

    "But, your health costs will go right through the roof. Especially, if you are forcibly retired before you reach 65."

    It boggles my mind that we continue to offer complete, single-payer socialized medicine in an extremely effective and popular program that clearly saves lives and gives human beings dignity and relief - but we cut everyone under 65 out of the program.

    Just give everyone the choice to buy in to Medicare if they wanted to by paying an additional premium and take the health care worries off the table.

  • Report this Comment On April 20, 2012, at 2:56 PM, sidehiller wrote:

    I hate to say it--and I hope I am proved wrong--but I fear that the assumption of lower tax rates in retirement may not be borne out by future events.

    Governments will need to adjust their tax structures to support themselves, and that means creating tax rules that reap the most income from the largest age segments of the population.

    Guess what, boomers? It's us. And if we have retirement savings, that's money that some government analysts will find a way to skim a share of.

    So we may be in for a rude surprise when we withdraw money from tax-deferred accounts in coming decades. That money may well NOT be taxed at a lower rate than we paid while working.

    I'm already kind of steamed over the (proposed? adopted?) 3% surtax on dividend income (and capital gains?) to be devoted to paying for Obamacare. (Reliable information on the proposed Obamacare dividend tax is hard to suss out...does anybody out there have a good factual reference, so I can decide whether to sell off some of my dividend-earning stocks?)

    Once we reach retirement age, most of our income will be derived from investments and I wonder if the Obamacare "dividend surtax," and the newer proposal to charge the top-tier income tax rate to investment income, is just beginning of a widespread program to tax the heck out of investment income.

    Could goverments someday even undercut the tax-favored status of Roth IRAs? Taxing Roth IRA withdrawals would seem like an outrageous "bad faith" move on the part of Uncle Sam, but there is ample precedent for retirement deals getting radically changed years after people put their money in.

    For instance, the Windfall Elimination and Government Pension Offset changes made to Social Security Retirement in 1983. I had 40 credits in SSA before I took a job with an agency that got out of the SSA Retirement system, and I had no idea that the federal government could go back and take away my vested rights. But they did. (For those of you who don't know about WEP or GPO, look at SSA Publications 05-10045 and 05-100007.)

  • Report this Comment On April 20, 2012, at 3:47 PM, cbandtb wrote:

    Finally someone writes an article about what the IRS has known and published for years. In retirement expenditure declines significantly each decade we live. That first decade is the most expensive because we are actively doing all the things we could not do while working, but as age creeps on we are unable to keep up the pace and $$$ spent declines about 30% per decade

    It is amazing how many people write comments having read the article incorrectly! MCD as an investment not an eatery for retirees. SS won't be there for me! A myth. We all get Medicare if we live long enough, although that might be a myth. As for the NHS, most people I know in UK supplement it with private insurance.

  • Report this Comment On April 20, 2012, at 4:10 PM, RJSolo wrote:

    I'd rather not face retirement......to me it means taking steps to wind down your life. Downsize the house, cut expenses, and have less interaction with the vibrant young people I work with and enjoy being around.....I guess eventually I have to, but why be in a hurry. I'd rather keep working than sit at home wondering what to do with my wife, so I accept that eventually I may need to change what I do to get out of the house. I'm in the habit of spending money on myself and enjoy doing just that...so why would I want to change that by voluntarily "retiring" ?

    The secret to a succesful elderly life lies in exercising regularly, keeping the mind active, and eating appropriate foods. Nothing too much in excess, so at least one Martini a day!

    My friend who retired early sits at home & now takes drugs to overcome his anxiety, as he has too much time on his hands to worry about petty nonscense, and how he can afford to live!

    I'll keep my head in the sand, and keep working as long as I can...that's the best plan!

  • Report this Comment On April 20, 2012, at 6:12 PM, zyprexa0969 wrote:

    Well, life is complicated for seniors or is it? I'll be 67 next month and I just returned from a 14 month around the world trip that cost me a total of $17,000.00. That's crazy right! And I had 2 operations along the way; cataract op in India at $595.00 and hernia op in Thailand-private insurance at $300.00 for the policy.

    My next trip will include Tibet, China, Burma, Bali and, no doubt, a few surprises. I will do some pro- bono work in Cambodia for a while. I life on SSI. I gave almost all my savings to my kids and I live-well-on my SSI. I don't sit and wring my hands over what the future will bring-whatever it is, I will deal with it. So, you have a plan B, if you are not wedded to trying to live at a standard that is no longer achievable for you. healthcare alone in the US will kill you.

    If you look for alternatives, they are there. Good luck, Jeff

    Currently in Bolivia

  • Report this Comment On April 20, 2012, at 6:28 PM, hummingbear wrote:

    I have to think that someone is going to have to pay for the debts our governmnet is incurring. This will be with higher taxes and inflation unless there is a huge economic boom (which I don't see that happening soon). Medical bills are going to cream the baby boomers. It costs $200-300/day for nursing care. That alone would require over a million in equity or a very large bill for long term care (that you lose if you kick). Maybe Soylent green is the answer to aging.

  • Report this Comment On April 20, 2012, at 6:41 PM, mickeyd73 wrote:

    At my age I've developed an attention deficit disorder. Could you please get to the point quicker with your advice. I soon tire of the verbiage and the need to "click" to other sites to find the answer to the headline...mickeyd73

  • Report this Comment On April 21, 2012, at 1:37 PM, TMFBreakerRob wrote:

    @TheRealGlaird: You wrote: "I have yet to meet a 50+ year old who has not been forcibly retired."

    We're not exactly "meeting", but I retired... on my own... in 2010 at the age of 57.

    Why? Because I have better things to do with my life than satisfy the wants of some corporation and its management.

    How? Investing, primarily on the basis of companies recommended at Rule Breakers and Stock Advisor, but also some from the non-subscription boards as well as other companies I found. It's not impossible, it's not even hard... but it does take diligence and patience... and self reliance.

    Fear, short term thinking, following the crowd and looking to assess blame are popular alternatives.... but I haven't seen people successfully invest with them (not to suggest that those are issues with YOU, just that I see a lot of people using them).

    Good luck. Growing your own wealth is possible, but it take a few key steps. For most here, I think a subscription to one of those services I mentioned is one of those key steps. The next one? Participating on the newsletter boards. I generally see those people having success.

    What do I get out of someone subscribing and posting? Just satisfaction knowing that person is likely to do well.

  • Report this Comment On April 22, 2012, at 12:11 PM, torontocanuck wrote:

    The endless fight about health care cost in the USA and who pays) is as illustrated as any about the commodity that is known as a human being .

    The USA is the ONLY industrialized country that does not have a comprehensive health care system, but they have lots of money to fund military programmes. Pity!!

  • Report this Comment On April 23, 2012, at 9:23 AM, wwwenger wrote:

    The article includes the following statement:

    "Although many financial planners suggest that you may need 70%-80% of what you were making before you retired in order to sustain your standard of living, the statistics don't actually bear that out."

    What the article actually demonstrates is that if you LOWER your standard of living, you can get by on less than 70% of what you were making before. In other words, the financial planners were right. If you want to SUSTAIN your standard of living, you really do need that 70-80%.

  • Report this Comment On April 27, 2012, at 8:04 PM, jimali43 wrote:

    As someone who has been retired for 20 years, the statistic that retirees pay spend 32% less than pre-retirees on “eating out” comes as shocker. I can imagine that it can only be true for those who had $15 lunch meals while they were working. Retirees have more time to eat out and they may find cooking more of a chore.

    Likewise the transportation cost statistic of 34% less may only be realistic for those who had high commuting costs and just want to stay home all day when they retire. Retirees have the time to travel around the country and to foreign destinations. These costs are certainly not inexpensive.

    Granted that most retirees will pay less for clothing and housing, this reduction is counterbalanced by increased health costs. For instance, the price of hearing aids, which are not covered by insurance, can come as a shock.

    One thing that is left out of much retirement planning is the cost of new technology services and gadgets. When I was planning for retirement, there were no such things as the internet or cell phones. Who knows what services or gadgets may be offered in the future.

    If part of a retiree’s income is to come from investments, the retiree must be prepared for such things as inflation, stock market fluctuations, and interest rate deviations. For instance, the current low interest rates on savings have put a damper on retiree spending.

    I would tell anyone planning for retirement that you are going to need an income equivalent to your current income (assuming you have no more childcare expenses or mortgage expenses) less what you are paying for social security and what you are putting into savings. And you better have some of your savings in something that will grow with inflation.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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