Small nest egg? Relax

Worried that you won’t have enough to retire on? You might be worried about the wrong thing. If you’ve crunched the numbers and discovered that you’ll need an absolutely enormous nest egg, don’t despair. It may turn out that you don’t need to save more—the solution might be to get creative about how to spend less.

There are lots of ways you can enjoy the finer things in life during your golden years on less money than you’d think. If you’re smart about it, you might be able to retire years earlier than you thought you ever could. If you can trim just $5,000 a year in spending during your golden years, that means you can reduce the size of the nest egg you need by an amazing $125,000. Interested? Here’s how to do it.

First you need a rough estimate of how much you’ll need to live on when you retire. Consider that Statistics Canada figures show couples with kids spend on average $105,000 a year, whereas senior couples spend on average only $52,000 a year, a reduction of half.

As a benchmark, we find that most middle-class senior couples can live comfortably on just $40,000 to $60,000 a year, even if they spent much more while they were working. If both of you worked most of your adult lives, Canada Pension Plan and Old Age Security should pay you around $30,000 a year if you both retire at 65. That leaves perhaps $10,000 to $30,000 that you’ll need to withdraw every year from your nest egg, plus annual inflation adjustments. To provide that, research has found that if you retire at 65, you will need a nest egg that’s about 25 times the size of those annual withdrawals, if you want to have little risk of outliving your money.

At this point you’re probably thinking that saving $25 or more just to cover $1 of annual spending is a lot to ask. And it is: To provide a retirement income of $20,000 a year, you’ll need to save $500,000. But look at it the other way around: If you can cut $1 of annual spending in retirement, that’s $25 less you have to salt away. In other words, if you can reliably reduce your anticipated retirement spending by just $5,000 a year, you can reduce the size of your nest egg by a whopping $125,000.

Exactly how you should trim your retirement spending will depend on your individual tastes and circumstances—that’s where the creativity comes in. But to get you thinking, here are six good ways to save $5,000 a year.

Travel differently
Many of us dream of exotic travel in retirement. But keep in mind that you can easily spend $10,000 for a three-week vacation to Europe once you include air tickets, upscale hotels, and eating out at fine restaurants. On the other hand, many snowbirds get by on $5,000 or less for stays of up to three whole months in U.S. sunspot locations such as Florida and Arizona. They keep their costs down by driving there and back, renting a comfortable but modest apartment or trailer long-term, and preparing their own meals.

You can find your own happy balance between the two approaches if you want. For instance, you could still go to France, but you could rent a farmhouse in Provence and cook your own meals, instead of going to a five-star hotel in Paris. Or you could set up a special fund for a trip of a lifetime blow-out in your late 60s, but set aside a much smaller budget for regular annual travel.

Sell one of your cars
There’s a good chance you and your spouse both needed cars when you were both working. Once you retire, you’ll probably be fine with one. That will save you at least $7,800 a year (which is the annual cost of owning a Chevrolet Cobalt and driving it 12,000 km a year, as calculated by the Canadian Automobile Association). Simply selling one car allows you to trim your nest egg by $195,000. If you only have one car to start with, you can still save a bundle by replacing it less often and buying used.

Shop for savings
Trimming $5,000 a year from your budget means spending about $100 less per week. That sounds tough, but you might find it happens quite naturally. As you get older, you’ll continue to buy what you need, but you’ll likely cut back somewhat on wants.

You’ll have the time to comparison shop and check out sales. You’ll be wiser, less stressed out and less worried about impressing the neighbours, which means less convenience shopping and fewer impulse buys. You might find that you really enjoy doing more cooking at home. That could mean big savings on eating out. You’ll also tend to make do a little longer with existing furniture, appliances and electronics. And, of course, don’t forget that seniors discount.

Drum up extra income
Money earned is just as good as money saved—and earning just a little income doing something you love part-time can make a huge difference. For instance, if you love art, you could work at the local college as an instructor when you retire. Even if you earned only $9 an hour after taxes, you could make that $5,000 difference by working less than 12 hours a week. Or perhaps you could rent out your basement. A rental income of just $500 a month can bring $5,000 a year, after allowing a little for income tax and other expenses.

Relocate to a tax break
If you’re looking to move, consider provincial taxes and property taxes in your decision. Depending on individual circumstance, that might save you your $5,000 a year right there. Alberta has low income taxes, no provincial sales tax, and good seniors benefits (although not everyone enjoys Alberta’s winters). B.C. has a property tax deferral program that allows those 55 and over to defer paying property taxes until they die or sell their house (a low interest rate, currently 0.50%, is charged on the amount owing during the deferral period, and you have to live in B.C. for a year before applying). If you require expensive prescription drugs, some provinces—such as Ontario—have good seniors’ drug benefit plans which can cover most of those costs.

The joy of simple pursuits
If you take up playing a lot of golf at exclusive high-end courses, that could easily set you back $5,000 or more a year. A boating hobby can be just as expensive. You should plan to stay active physically, but you can save a bundle enjoying relatively lower-cost pursuits like playing tennis on public courts, going for walks, or joining the YMCA. If golf is your passion, you can save a lot on green fees at less prestigious farther-away golf courses. If sailing is your thing, you might crew on other boats.

Plus “there are lots of activities you can pursue which don’t cost much money,” says Ernie Zelinski, Edmonton-based author of the quirky best-selling retirement book, How to Retire Happy, Wild and Free. In person as in his book, Zelinski enthusiastically tosses out scores of suggestions on active things to do in retirement ranging from amusingly odd-ball (“compile a not-to-do list for the rest of your life”) to the more prosaic but sensible (“go swimming in a public swimming pool”). His “Get-a-life” tree technique systematically takes you through possible pursuits, from activities that “turn you on” now, to those that “turned you on” in the past, to new activities you’ve never thought of doing.

His suggestions are a fun reminder that the number of potentially fulfilling activities in life to choose from is vast. Zelinski, now 61, has been semi-retired for 30 years, ever since he was fired from his job as an engineer for taking an unauthorized vacation. While he now lives comfortably on about $100,000 a year from his books and other endeavours (he says he currently works three to four hours a day), he has first-hand experience living happy, wild and free on a tight budget. He says he lived on only $15,000 a year during the first 11 years of semi-retirement, before achieving publishing success. “That really forces you to be more creative.”