For most retirees, the cost of living drops once you decide to retire – you no longer need to invest in office attire or spend money commuting to work, you’re no longer supporting children or paying for education costs (hopefully!) and you can finally live in a less expensive area without worrying about school districts or proximity to work.
Still, this doesn’t guarantee smooth sailing once you start cashing in your hard-earned retirement savings. There are some very common budget-busters that catch retirees by surprise, forcing them to find ways to save during retirement. And without the possibility a raise, annual bonus or promotion to rely on, extra money can be hard to come by.
Here are 5 common ways retirees overspend and how to avoid them.
1. Excessive Life Insurance CoverageMany Americans make the mistake of keeping the same life insurance policy for decades, without ever updating their coverage to reflect their life changes. For example, people in their 30s with young children and a large mortgage require significantly greater coverage than retired seniors with no dependents and either a small or completely paid off home loan.
For retirees, the high cost of excessive life insurance premiums can sap their savings. It’s likely that a small term life policy or burial insurance plan is all the coverage they need. In fact, many retirees have built up enough liquid assets that even a basic life insurance policy is unnecessary.
Tip: Conduct an insurance audit once a year to make sure you aren’t paying for excessive coverage. This includes any life insurance, supplemental Medicare coverage, auto coverage, and homeowners or renter’s insurance. If you have some wiggle room in your budget, consider raising your deductibles to lower the cost of your monthly premiums.
Related Reading: 5 ways seniors can continue earning during retirement
2. Spending Too Much on HousingIf you’re still living in the house you raised your children in, you’re probably paying way too much for housing. The average yearly housing costs for retirees is $14,034, which includes $5,194 for owned property vs. $1,818 for a rented apartment, reports the U.S. Bureau of Labor Statistics. Other costs include $1,475 in mortgage interest and charges, $2,026 in property taxes, $1,693 in maintenance and insurance and $1,260 in household furnishings.
It can be tough to let go of those years of memories, but downsizing to a smaller and more manageable home can bring significant savings in many of your monthly bills. Plus, the less time you spend taking care of a large house you don’t really need, the more time you’ll have to appreciate all the benefits of retirement, like traveling, spending time with friends and family and enjoying hobbies.
Tip: You don’t necessarily have to move to “retirement-friendly” states like Texas or Florida to save money during retirement. Sometimes moving just 15 or 20 miles farther from your current neighborhood can dramatically reduce your cost of living.
3. “Friendly” LoansA growing number of recent grads and adult children are turning to their retired parents for financial help. While watching your kids struggle financially is difficult, lending out money can jeopardize your own financial stability.
If you decide to lend someone money during your own retirement, make sure you only lend what you’re willing to lose in case you never get the money back. It’s also a good idea to charge the person interest, so you can still get a return on your investment.
Tip: Look into taking a loan from your IRA instead of just handing over cash. In some cases, you can take the money out penalty-free. That way, you won’t have to drain your own cash reserves to help out someone else.
4. Buying an Expensive CarNew cars are one of the worst investments anyone can make, especially for retirees. Cars start depreciating the second you drive them off the lot and retirees need to focus more on preserving their investments, not depleting them.
Since you aren’t commuting to work or driving kids around, it’s very likely you can live comfortably with a small, inexpensive used car. The insurance will be cheaper and you’ll be driving less, which means spending less on gas and maintenance.
Tip: According to AARP, the best time to buy a car is in the winter, when there is a greater chance to score a discount and the worst time to buy is in the spring when demand is high and consumers’ pockets are lined with their tax refund checks. In general, the end of the month, early in the week and late in the day are the best times to make a deal, as salespeople get more desperate to hit their goals.
Related Reading: Nontraditional ways of saving for retirement
5. Eating Out Every DayEveryone enjoys going out to a restaurant once in a while, but be careful not to get carried away and make it a part of your daily routine. Cooking at home is one of the easiest ways to save money during retirement since meals at restaurants and diners can cost exponentially more than buying ingredients and cooking at home.
So skip the meal out and save more money for retirement by making it a point of only eating out as a special treat, and on a day-to-day basis cook your own meals at home. Even signing up for a meal delivery service like Blue Apron, Freshly or Hello Fresh is cheaper than eating out and it’s healthier, too! It might also be fun to experiment with recipes and learn new cooking skills.
Tip: Retiring has its perks and senior citizen discounts on meals is one of them. From specially-priced menus to senior meal deals, The Senior List keeps a running list of restaurants that have special offers just for seniors. And if you don’t see your favorite eatery on the list, just ask. They may make a special consideration just for you.