5 Ways to Save Money in Retirement

In retirement, it's time to spend wisely.
With retirement, you're dealing with a phase of your financial life where you have a limited amount of money and no concrete idea of how long it must last. With finite resources, you must be mindful of your spending so you won't outlive your money and so you'll have the funds for the things most important to you.
"By the time people are ready to retire, or have already retired, they should have a very current picture of what their spending is," says Tim Kober, a certified financial planner with Cedar Financial Advisors in Portland, Ore. "There's the problem of spending going up in the initial part of retirement when people do all the deferred things that they've been wanting to, and it's important that they don't overdraw their nest egg to make all those nice things happen."
Retirement has many stages, and not every stage is one where you'll want to splurge. But it's important to realize that you may spend more initially, and budget accordingly. As you get things like the travel bug out of your system, spending may go down. But other expenses, like health care, may increase.
Time to Face Realty
A potentially emotional decision about retirement expenses is a possible need to downsize your housing, says Kober. Although adult children may be emotionally attached to the old homestead, "you may need to have the brutal, honest conversation with your family and say, 'This isn't a long-run sustainable housing situation.' You can reduce your housing costs and spend more time and money on leisure activities."
Gordon J. Bernhardt, CPA, a financial planner with Bernhardt Wealth Management in McLean, Va., agrees. Many consumers bought too much house or spent too much money on rental properties during the real estate boom and now may face a cash flow problem in retirement. "Is the individual overextended? Did he or she buy too much real estate and is facing the consequences of negative cash flows? In the cases we have seen, that individual is still above water, but selling the property will help their cash flow."
But remember there are a number of costs involved in moving, including real estate commissions and potentially higher property taxes. Also, according to Bankrate's 2010 Closing Costs Survey, average closing costs on a $200,000 home were $3,741.
Do Expense Accounting
Experts say one golden rule of retirement should be "Plan what you spend, spend what you plan." "Too many people don't have a budget," says Michael Kay, a certified financial planner who's president of Financial Focus in Livingston, N.J. "You need to know which costs are fixed costs, and which costs are discretionary. It's the discretionary costs that you choose, that you can trim."
Before you can cut your discretionary spending, you have to know how much it is. So keep track on what you're ppending for frills like entertainment, travel or impulse purchases.
Dining out is one place to put your budget on a diet, says Bernhardt. "Our clients have shared that they did not realize how much money they spent on eating out until they changed their habits and ate at home more often," he says. "And they did not feel like they were making a significant sacrifice."
Be Present-Minded
Grandparents and parents, naturally, want to lend a financial hand to their descendants. But it's not a good idea if it imperils your ability to stay financially solvent in retirement. Take a hard look at any outright cash gifts that you are giving, or expenses like private school tuition or summer camps that you're covering.
"Some of our older clients have reduced their annual gifting to reduce the withdrawal rate from their portfolios," says Bernhardt. "It's nice to be able to help out the grandkids, but you don't want to risk running out of money."
Go to the Goals
Whether you're already retired, or about to be, you need to periodically re-evaluate your personal spending goals. "You start with your core beliefs, what's important to you, and then you take a look at your financial reality," says Kay. "Then you may have to say, 'OK, do I need to make changes in my discretionary spending or do I need to make structural changes, like in where I'm living?'
"Some people might say, 'It's really important for me to live near my grandchild, and I'm willing to give up some discretionary spending to do that,'" Kay says. Others might conclude that some cuts in structural expenses are worth it in order to send a grandchild to summer camp.
The bottom line, Kay says, is that you must have a game plan to achieve your goals.
Drive a Bargain
After housing, cars are one of a consumer's biggest expenses. "People don't think about operating costs and the total costs of owning a car, including repairs, insurance and maintenance," Kober says.
Kober notes that couples can save money by cutting back to one vehicle. Also, retirees might employ other creative strategies like renting a cheap car for long trips instead of putting more wear and tear on their own set of wheels.

Copyrighted, Bankrate.com. All rights reserved.

5 Mistakes You May Be Making in Your 401(k)

Some might believe that making contributions to a 401(k) plan during your working years will provide enough money for retirement. Somewhere over the rainbow, there's a pot of money waiting for you. Unfortunately, no one is going to hand over a lump sum that will cover all of your living expenses when you stop working. This is just one of the common mistakes that people make when it comes to their 401(k) plans. Here are some of those blunders, and how to improve your chances of reaching your retirement goals:
1. You don't make any changes in your 401(k). Many workers sign up for a 401(k) plan when they start a job, and then don't pay any attention to their investment selections afterward. Studies have shown that just one in six 401(k) participants ever changes investments in their plan. Your retirement plan is not a "buy and forget" investment. Be proactive with your 401(k) by checking your investments every quarter, and making sure the funds you own are still meeting your expectations and are still the best of those available. It's a lot like getting your car serviced -- every few months, your car needs an oil change, and maybe a tune up.
2. You make too many changes in your plan. Some investors respond to day-to-day headlines and fluctuations in the market and feel like they have to move with them. Making too many changes based on emotions can cause you to take short-term actions that end up causing you to sell low and buy high, the exact opposite of the best strategy for opportunities to get higher returns. Say you're seeing the Dow Jones Industrial Average drop 100 points one day, and you sell your stock funds. The next day, the index gains 150 points, and the funds you sold are rallying, too. If you want to buy them back, you'll have to pay the higher price. Try to sit still and don't let your emotions rule -- otherwise your plan will get off track.
3. You don't have the right asset allocation. You won't have to make many changes to your 401(k) if you start with the right mix of different kinds of stocks, bonds, and cash. Some people get stuck when they have to choose mutual funds for their plan. Don't ask your parents, spouse, or friends about which funds you should pick. First, figure out your asset allocation and risk tolerance. Then examine the funds offered in your 401(k) plan and pick the ones that fit. Many mutual fund companies have general asset allocation recommendations (conservative, moderate, aggressive) to guide you, but your selections don't have to follow any set of rules. It may be worth the cost to hire a certified financial adviser to help you choose a diversified mix of funds that meet your specific needs. An adviser will also monitor those selections each quarter and help you make changes when needed. Depending on market conditions, you might have to re-balance your portfolio a few times a year to make sure your asset allocation stays intact, or adjust your asset allocation if your needs change.
4. You're chasing performance. Many investors crowd around funds that performed the best last year. They buy the fund at the peak price, only to be disappointed that the fund can't keep going up. Don't fall for the best performers of the moment. What you really want to know is which funds are going to do well next year. Given that no one knows for sure which areas of the market are going to be winners, it's best to be diversified among many different kinds of stocks and bonds and stick with your asset allocation. That way, you should be able to earn more when the market goes up and lose less when the market goes down. This is because a diversified portfolio is designed to avoid having all eggs in one basket, so while it can prevent losing more than the market during a market decline, it cannot produce more than the market during an upsurge.
5. You're not saving enough. Many companies will match employees' 401(k) contributions up to 3 percent of their salary, so that's all many people contribute. That may not be enough. Contribute 6 percent or 7 percent of your salary, or even more if you can. If you get a raise, put half of it into your 401(k). Use a retirement calculator, such as the one at Mutualfundstore.com, to help determine how much money you'll have at retirement. Many advisers used to estimate that people would need 60 percent to 70 percent of their income to retire comfortably. However, that might not be enough given that many people plan to be more active and travel in their golden years. Plus, people are living longer, and could face higher medical expenses. That's why you need to start saving and contributing as much money as possible to a 401(k) when you're young, and continue the discipline throughout your working years.

Secrets to a Richer Retirement

With stock returns projected to be low and pensions going the way of Lindsay Lohan's career, retirement planning can seem awfully daunting these days. You can't change the market or your employer's largesse.
But there is one factor you can do something about: you. You can be your own worst enemy, buying what's hot only to sell in a panic or wildly overestimating how long your money will last.
"Our brains are hardwired in ways that are the opposite of what we need to invest well," says Carnegie Mellon economics and psychology professor George Loewenstein.
Fortunately, a new wave of research is emerging from the still-young field of behavioral finance -- a blend of psychology, neuroscience, and economics -- that gives better insight into how your unconscious can help or hurt your financial future.
Though much of the work is still in progress (retiree avatars, anyone?), it suggests specific moves you can make before and during retirement to avoid your worst tendencies and get the most from your best intentions.
Secret #1: Get a Good Picture of the Future You
You probably imagine that when you're retired, you'll be pretty much like you are now -- maybe with a new fondness for early-bird specials and PBS wellness shows. But studies show that the present-day you doesn't really identify with this future person very much.
In fact, "your mind creates neural patterns similar to those created when you think about a stranger," says Northwestern University researcher Hal Ersner-Hershfield. That disconnect means you're reluctant to trade rewards today for rewards tomorrow -- the biggest hurdle to saving for retirement.
Behavioral scientists wondered: Could creating a better picture of your older self help you improve focus on your long-term goals? Researchers at Stanford University recently tested that question.
They put two groups of college students in virtual reality headgear and had them interact with life-size versions of themselves. (Each student shared a room with his or her avatar, which mirrored that person's movements.)
One group of students saw themselves at their current age; the other saw themselves age-morphed to appear 70 years old. Then the researchers asked how much the students would save for retirement. Those in the latter group said they would save twice as much, on average, as the other.
Experts are now building online tools to help you do such visualizations. Example: Ersner-Hershfield and colleagues are testing software that changes your photo as you move a slider to select different savings levels.
If you choose a low savings rate, your current photo will look happy (I can spend more now!), but your older one will look sad (my nest egg is shrinking!). So far they've found that people who see older, sadder versions of themselves choose to save 6.75% of salary, on average, vs. 5.2%.
Put these findings into action:
Write It Down
While you're waiting for such a slider to hit the Net, do a lower-tech exercise. Imagine the retirement future you want -- house by the lake? annual trips to Italy? worry-free sleep? -- in as much detail as possible. Then write down how you feel about that future. "It's not just imagining, but the act of writing, that helps you to focus your thoughts and take action," says Alessandro Previtero of the Ivey School at the University of Western Ontario.
Think of Gramps or Nana
"The grandparent of your sex who you most closely identified with can be a great proxy for your future self," says Ersner-Hershfield. Calling him or her to mind can lead people to budget better and save more, Northwestern researchers found.
Secret #2: Try to Beat the Other Guy
Thanks to your normal natural competitiveness, comparing yourself to others can speed you to your goals -- just look at TV's The Biggest Loser.
This strategy has definite potential in retirement planning. Preliminary research suggests that people who see data showing how their peers are saving are more likely to participate in their company retirement plans and to put more money in.
Thanks in part to these findings, financial services company ING recently set up a website that allows people eligible for some 401(k) plans it administers to compare their progress against that of their colleagues.
So far more than 20% of people who have spent time with the tool have made a positive change, such as joining the plan or upping the percentage of salary they contribute, says Ashley Agard, head of retirement research at the company.
Your peers can be powerful in another way too: They can put pressure on you to meet your goals. So-called commitment strategies, in which people publicly proclaim their intention of hitting a target, are often effective for those seeking to lose weight or stop smoking.
Now researchers are looking at how well they work to help increase saving. In 2008 Yale professors Ian Ayres and Dean Karlan launched StickK.com, a free website that lets users make a public or private commitment for just about any kind of goal.
To up the pressure still more, users can bet money on the outcome. The researchers need more data to show how well the approach works for retirement-related commitments, but early results are encouraging.
Put these findings into action:
Benchmark Yourself
You can start at INGcompareme.com, a public website run by ING. There you compare your financial status -- free and anonymously -- with those of nearly 140,000 other users who have similar ages, incomes, and other details.
Does your savings level fall short? Get moving! Are you way ahead? Great, but just because you're beating your peers doesn't necessarily mean you'll meet your goals, warns Jack VanDerhei, research director at the Employee Benefits Research Institute.
To see if you've succeeded in hitting recommended savings benchmarks, check out our retirement checklist.
Make a Commitment Contract
You could do anything from telling a few friends about your savings goal and asking for their support -- perhaps meeting once a month -- to placing a bet in public that you'll succeed in reaching a certain saving level by a certain time. You can broadcast your pledge via social media such as Facebook or Twitter. Or use StickK.com.
Secret #3: Use reminders and checklists
Human beings are prone to distraction by immediate events -- helpful in the days when an angry wildebeest might interrupt your dinner, but not so much when you're planning for retirement. "Reminders are one of the simplest, lowest-cost ways to cut through distractions and stay focused on your goal," says Yale's Karlan.
He and other researchers working with banks in Peru, Bolivia, and the Philippines looked at the impact of sending account holders reminders to save by text message or postcard. The savers who got those messages put away as much as 16% more.
Checklists are another effective tool to help you stay on task. As Harvard surgeon Atul Gawande pointed out in his 2009 book, The Checklist Manifesto, the simple act of going through one of these lists can help you avoid missing a vital step.
When surgeons and airline pilots began using them, hospital infection rates and pilot error declined. No wonder so many financial advisers rely on checklists for clients nearing retirement.
Put these findings into action:
Arrange Automatic Prompts
It's easy: Just set e-mail alerts in your digital calendar or via a personal finance website such as Mint.com. The most effective, says Karlan, are as specific as possible ("put $1,000 in my Roth IRA on Dec. 1," not "save more for retirement"). Arrange for them to hit your in-box at tax time, at bonus time, and after your year-end statements arrive (to prompt you to rebalance).
Put a Reminder Where You'll See It Every Day
Remember that Northwestern study showing that thinking about a grandparent can help you save? Study subjects wore wristbands with the acronym WWGD (What Would Grandma/Grandpa Do?) written on them. Hokey, sure -- but effective. Placing a reminder of your goal where you'll see it day in and day out (a photo of your dream retirement house by your bed, for example) could have a similar effect.
Secret #4: Think in Bite-Size Pieces
Use a Retirement Checklist Each Year
For one tailored to your age group, try ours.
Your 401(k) plan has likely trained you to think about building a single lump sum. But even savvy investors tend to overestimate how long such a sum will last.
When you look at a dollar figure, explains Princeton psychology professor Eldar Shafir, you're inclined to focus on its nominal value rather than on its total purchasing power, which will be eroded by inflation.
Experts call this phenomenon "the money illusion." And they've come up with a technique to correct it, known as reframing. Instead of focusing on the total sum, focus on the monthly income that the sum will create during your retirement years.
"People understand how much money they need each month, so it makes the saving process more relevant," says UCLA behavioral finance professor Shlomo Benartzi.
The idea is catching on. Financial services firm Putnam, for example, recently redesigned the website and statements for the 401(k) plans it administers to prominently display monthly income projections rather than total balances.
Put these findings into action:
Run the Numbers
Estimate your monthly retirement income by using the calculator at troweprice.com. Compare that amount with what you'd like to spend. Falling short? Ramp up saving, cut spending, or postpone retirement (or all three).
Tweak Your Investment Mix
Inflation, tame now, could increase dramatically over the years, warns Marilyn Dimitroff, a financial adviser in Bloomfield Hills, Mich. One way to limit the damage is to increase the amount of money you keep in dividend-paying stocks.

Retirement investing: Don't abandon stocks

(MONEY Magazine) -- Question: My wife and are in our mid 30s and have begun aggressively contributing to our 401(k) and a Roth IRA. I know we should be looking long term, but it's discouraging that our account balances are lower than they were earlier in the year. If we had just stuffed the money under our mattress, we wouldn't be sitting on a loss. Should we keep investing in this market or go with the mattress theory? -- Daemon Fields, Eustis, Florida
Answer: I don't blame you for feeling discouraged. If you're serious about building a nest egg, it's hard not to feel disheartened these days.

After all, despite a rally since the end of August, stock prices are still down from their levels earlier this year, not to mention more than 25% below where they were nearly 10 and a half years ago.
So I can see why you might think that simply sticking cash under the mattress -- or, more realistically, investing it in something secure like Treasury bills or FDIC-insured CDs -- might be better than tying your retirement prospects to the stock market.
But I think you would be making a mistake to give in to the understandable urge to abandon stocks.
For one thing, when you're investing for retirement, you really do have to focus on the long term, and I mean really long term when you're only in your 30s.
To get an idea of why that's the case, let's take a look at an episode in U.S. stock-market history that's even worse than anything we've seen in our lifetime -- the Crash of 1929.
If you had invested, say, $1,000 in stocks when the market was at its peak in late August-early September of '29, you would have been sitting on a loss of about 83% by the time the market bottomed out roughly half way through 1932. In other words, your thousand bucks would have been worth only about $170.
What's more, it would have taken a long time for you to recover from that setback. Assuming you held on and reinvested dividends, you wouldn't have gotten back to even until the beginning of 1945.

But if you had held on until August of 1959 -- in other words, for 30 years, or about the same length of time you have from now until you and your wife will retire -- you would have earned an annualized total return of about 7.8% and your original grand would be worth just over $9,500.
Granted, had you invested in secure T-bills over that period, you wouldn't have lost any money in the crash. On the other hand, by the end of that 30 years, you would have earned only an annualized 1% or so, which means your original $1,000 would have been worth only a little over $1,300.
But this example shows only what would have happened to a single sum invested at one moment in time, that moment being the top of the market. When you're saving for retirement through 401(k)s, IRAs and the like, however, you're not investing all your money at once. You're periodically investing small sums. Which means you're effectively earning different rates of return on each 401(k) and IRA contribution.
Thus, while you would have earned 7.8% annualized on $1,000 invested at the top of the market in 1929, a $1,000 investment in stocks at the bottom of the market in 1932 would have earned an annualized 16% by August, 1959.
In short, over the course of a long career, you're going to earn a variety of returns on the money you invest, some lousy, some middling, some spectacular. You can never be sure what returns stocks will deliver. But as Ibbotson Associates founder Roger Ibbotson told me in a recent interview, the more fearful people are about investing in stocks, the higher the returns stocks are likely to generate going forward.

0:00 /3:04Enjoy life and save for retirement

The point, though, is that I don't think it pays to get too caught up over the return at one particular point it time, whether it's fabulous or horrendous. What counts is how large a nest egg you'll eventually have to support you in retirement.
I want to be clear that I'm not trying to play down the risks of investing in stocks. They are definitely risky. Stock prices can fall precipitously and they can stay down for a long time. And even though history shows they have rewarded investors handsomely over long periods, those returns are anything but certain.
That's why, even if you're OK with the case for investing in stocks over the long run, your retirement portfolio shouldn't be invested entirely in stocks. You also want to be sure to scale back your stock stake as you approach retirement -- and continue doing so after you retire -- to avoid seeing your savings get decimated late in late in life when you don't have as much time to recoup losses. That's the theory behind target-date retirement funds.
Of course, you could chose to build a nest egg without stocks by investing solely in more stable alternatives like bonds and cash equivalents.
So as I see it, you have a choice. You can do the investing equivalent of keeping your money under your mattress and avoid stocks. Or you can take what I consider a prudent level of risk and include stocks in your long-term retirement investing strategy.
I'll grant that you may sleep better now with the Sealy approach. But unless you're willing to really rev up your savings effort, I doubt you'll sleep as well during retirement. 

Fastest Growing Jobs in America

How will the job market evolve in the next decade? Fortune takes a look at some of the fastest growing professions in the U.S.
Nurses
The number of registered nurses is expected to swell to 3.2 million by 2018, accounting for approximately 581,500 new jobs, according to the Bureau of Labor Statistics. That's up from 2.6 million today, and it represents the largest overall growth projection out of all occupations in the U.S. economy, for good reason.
Americans aged 65 and older will make up 19% of the population in 2030, up from 12.4% in 2000. As the population ages and the growth of the working-age population slows down, there will be an increased demand for health care services in general, and home health care services in particular. In the past year, the home health care services industry has experienced sales growth of 11.2%, making it the fastest growing industry in the U.S., according to Sageworks, a financial analysis company.
Along with registered nurses, Sageworks projects that home care aids, physician assistants, pharmacists, and other medical professions will be in high demand for the foreseeable future.
Network Systems and Data Analysts
This occupation's full title is "network systems and data communication analysts." And while it's a mouthful, it is worth remembering as it's the second-fastest growing occupation in the U.S., according to the Bureau of Labor Statistics. In simpler terms, these analysts are the folks who design and build the systems that we use to connect to the web, from work or home.
In many ways, these are the folks that make communication possible in our Internet-centric world. So perhaps it's not so surprising that they are in high demand, and will be for the foreseeable future. BLS's latest employment outlook report estimates that the profession will grow by 53.4% to almost 448,000 workers between 2008 and 2018.
Software Engineers
What would all that planning and design by network and data analysts be worth without software? Not a whole lot, which explains why the BLS expects the cadre of software engineers and application developers to swell to 689,900 by 2018 (up from 514,800 in 2008). Whether they are building business software, constructing an operating system, developing games, or designing mobile apps, software engineers have a wide array of career avenues to consider.
And it surely does not hurt that the worldwide smartphone market grew by 50% between the second quarter of 2009 and 2010, according to the market research firm IDC. The impressive growth of the smart mobile industry over the past few years will only add fuel to the fire of the impressive job prospects for application developers, as smartphone users have come to expect increasingly advanced software applications to justify the increased expense of their phones.
Biomedical Engineers
Biomedical engineering is expected to be the fastest growing occupation, with a whopping growth project of 72% between 2008 and 2018, according to the Bureau of Labor Statistics. It's not much of a surprise, given that this field lies at the nexus of technology and health care, two ballooning industries within the U.S. economy.
The immense growth of biomedical engineering will be driven by the demand for new treatments for diseases and the increasingly higher expectations of aging patients to maintain an active lifestyle. Indeed, the pharmaceutical and medicine manufacturing industry experienced 11.1% sales growth in the past year, according to Sageworks.
From developing artificial organs, medical devices like pace makers, or refining imaging technology that allows doctors to examine patients in more precise ways than ever before, biomedical engineers will have plenty to work on in the coming decade.
Accountants and Auditors
While number crunching and bean counting has certainly not fallen out of style in recent memory, the economic fallout of the past few years has placed renewed focus on financial regulation. And with the passage of the federal financial reform bill in June, companies will need an even larger cohort of auditors and accountants to parse through new regulations to make sure they are in compliance.
The accounting profession is poised to experience 22% growth between 2008 and 2018, with an anticipated 279,400 new jobs in the field by 2018, according to the BLS.

Veterinarians
Our love for the dogs, cats, and fish in our lives truly knows no bounds. Pet care was one of the only sectors of the retail industry that grew during the recession.
According to the 2009-2010 National Pet Owners Survey, 62% of U.S. households owned at least one pet in 2008, accounting for approximately 71 million households. And the American Pet Products Association estimates that pet owners will spend almost $48 billion on their pets. Just under $24 billion of that will be spent on medicine and veterinary care, as more Americans than ever before open their wallets to spring for treatments for an ailing animal family member.
It's no surprise, then, that veterinarians are listed as one of the fastest growing professions in the U.S. -- the number of vets is expected to expand by 36% between 2008 and 2018.