The Plan for How You Spend
1. Look at a map
One way to dramatically lower your living expenses: Go somewhere cheaper.
This doesn't have to mean moving across the country, says planner Tim Maurer. Trading a high-tax school district for one nearby with lower taxes can make a substantial difference. If you're willing to go a few hours — say from San Francisco, where the median home price is $685,000, to Carson City, Nev., where it's $140,000 — you can transform your standard of living. "This is the most powerfully positive thing that someone can do to improve their retirement situation," says Maurer.
2. Reimagine your life (insurance)
Maybe you first bought life insurance when you had a baby. Now the baby's in law school. Time to think about how much longer you'll need the coverage. If your obligations are behind you — for example, your spouse could live on the money in the retirement accounts plus Social Security if you died, and the kids are on their own — then drop it.
3. Think long term
If you're mulling long-term care insurance, your window is closing: The younger you are when you apply for coverage, the lower your premiums. According to the American Association for Long-Term Care Insurance, a 60-year-old couple could get policies for about $155 a month each. The initial benefit of $162,000 grows to $329,000 for each individual when that person reaches 85.
At 65, that same policy will cost about $225 a month. Such policies can work for people worth more than $500,000 — too much to easily spend down to qualify for Medicaid, but less than the $3 million it would take to fund their own continuing care.
4. No, really long term
Got great genes and fear outliving your savings? Longevity insurance is a less-expensive policy that won't pay off unless you live, typically, to the ripe old age of 85. Then you'll start receiving monthly sums to help with your living expenses. Say at age 60 you buy a $50,000 policy from MetLife. If you live to 85, you'll start receiving annual payouts of $15,862 if you're a man, $15,511 if you're a woman.
Don't forget about inflation: This money would only be worth $7,576 (man) and $7,408 (woman) in today's dollars. Some companies offer longevity insurance that has inflation protection. It's worth paying for.
Jean Chatzky, AARP’s financial ambassador, is a best-selling author and an award-winning personal finance journalist. With additional reporting by Arielle O’Shea.
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