The latest "Retirement Confidence Survey" released by the Employee Benefit Research Institute might be better titled the "Retirement Uncertainty Survey." Almost half of the workers surveyed said they have little or no confidence about having enough money to retire comfortably.
Personal debt, declining savings levels, concerns over rising health care costs and possible job loss were among the chief worries of those surveyed. But what really jumped out at me was that less than half of the respondents said they had attempted to figure out how much they'll need to save for retirement.
In my new book, How to Retire the Cheapskate Way: The Ultimate Cheapskate's Guide to a Better, Earlier, Happier Retirement, I encourage you to become the CFO — Chief Frugal Officer — of your household. Fully understanding and controlling your spending is as important when planning for retirement as smart investing. You need to figure out exactly where your money goes today and where it will be spent when you're retired.
Here are five key principles for how to retire the cheapskate way.
1: Live not just within your means, but consistently below your means throughout your working years.
Spending less than you earn sounds simple enough, but it's quite rare. A 2012 survey by the American Payroll Association found that more than two-thirds of Americans report living paycheck to paycheck.
Cheapskates frequently adopt what I call a "permanent standard of living." They decide at a relatively young age that they're content with the lifestyle they're leading. So, even when they make more money, they refuse to increase their spending. Avoiding this "lifestyle creep" allows them to live marginally below their means. Financial security and the peace of mind that comes with it are the trade-off for not always driving a new car or constantly hopping from one house to a larger, more-expensive home.
By adopting this approach, frugal folks are able to set aside greater savings for retirement throughout their income-earning years. So, later in life, they won't need to gamble on risky investments in an attempt to make up for lost time. By living below their means, cheapskates have been test-driving their retirement budgets and lifestyles for years. Once retired, their spending and lifestyles typically change very little.