Retirement Lifestyle: How to Live Smart While You're Saving

January 4, 2016

retirement-savings-lifestyleWhen saving for retirement, many people focus on just one thing: building up enough money to last their entire life. Retirement, however, is much more complicated, and there are four elements to building and maximizing retirement savings. They are:

  • Lifestyle
  • Longevity
  • Liquidity
  • Legacy

Over the next few weeks we're going to explore each of these L's and how they affect your retirement income. The first one we're tackling is lifestyle.

The Retirement Savings-Friendly Lifestyle

What does it mean to live a retirement savings-friendly lifestyle? Does it mean keeping a budget? Spending less? Setting more money aside for illness? The answer is ... all of the above. Living a lifestyle that lends itself to putting away more for retirement is all about living responsibly, planning for the future and making the most of the tax deductions at your fingertips.

Here are the top four ways to live a retirement savings-focused lifestyle:

  • Manage your costs. The key to living a retirement savings-friendly lifestyle is maximizing your spending power. What's your budget? Do you have one? Start by listing out all your income sources. This can range from returns from your portfolio to working a job. You can also adopt a 50/20/30 strategy, using 50% of your money for necessities (housing, food and energy bills), 20% for retirement savings, and 30% toward lifestyle choices, including your pets, cell phone bill and vacations.
  • Put more away for health care expenses. When putting together a budget for the government in late 2015, both congressional parties spoke of a possible 52% percent jump in Medicare Part B expenses in 2016. Thankfully, this deal was avoided, thanks to a bipartisan tax bill, but that doesn't mean you'll pay less in expenses. Set aside money for the unknown and inevitable.
  • Focus on tax breaks. When you're leading up to retirement, there is a significant amount of deductions that can help you reduce your taxes. Did you know you can get tax breaks for business expenses even if you work part time? Or get a tax break for your investments? From tax breaks for driving to medical appointments, to tax deductions for retirement plan contributions, these things can significantly reduce your bill or put more money in your pocket.
  • Pay off your debt. Do you owe money for a car, mortgage, credit cards or even student loans? Take the time to pay down your debts. The longer you wait, the more interest you'll need to pay—something you don't want when you're saving for retirement. If you're in this scenario, you might find yourself in a conundrum: Save for retirement or pay off debt? Your retirement savings are designed to grow over time, so if you can manage to pay off your debt while you continue saving, definitely do so. For the cautious and risk-averse, paying down debt more quickly is the way to go.

Ideally, saving for retirement should start in your early 20s, the time when you typically land your first "real" job and start earning enough to put away. However, even if you're in your 30s, 40s or 50s, you can still build a nest egg by taking on the habits listed above.