A penny saved is a penny earned. Actually, a penny saved is more than a penny earned after taxes are factored in. Depending on where you live a penny saved could be like two pennies earned.
Anyway, this isn’t really a post about taxes. Taxes are just the icing. It’s a post about how to earn more on your investments in retirement. Remembering that a dollar not spent is another dollar (or two before tax) in your pocket. Here are just a few ways to get more money in retirement.
We just got solar panels on our home. It’s a big investment, but it’s an investment with a guaranteed return. How many investments are like that?
Right now the money sitting in my bank account is earning .11%. The money sitting in short-term bond funds is earning just a tad more. Long-term bond funds may wind up earning negative returns depending on when and how quickly interest rates rise over the coming years. And the stock market is sitting near all-time highs. Who knows the future direction, but I’m guessing the huge returns we’ve been experiencing over the last few years are not going to continue, at least in the short-term.
So I took the dollars out of my bank account, where my returns were dismal--basically zero--and affixed those bills to the top of my roof. The electricity that those bills are generating cuts an actual dollar amount off of my monthly electricity bill. That’s the same as if my bank account generated enough after-tax interest income to pay most of my electricity bill.
Projected out over a 20-year life for the panels, the net amount I’m saving on electricity is equal to a 15% annual “dividend” on my investment. Oh yeah, and tax-free.
Of course, you don’t have to be retired to take advantage of this tip, but the math works better if you know that you will be living in your house for at least the recoup-your-investment period; in my case that’s eight years. I’m pretty confident I will be living in my house for the next 20 years. If you’re still working, you might not be able to make that call as confidently.
(Here's a good article about investing in solar to supplement retirement income.)
Replacing a Fuel-Inefficient Vehicle
Last year we traded in our gas-guzzling car that got about 20 miles per gallon. I say traded in, but we almost had to pay them to take it off our hands. It had nearly 200,000 miles on it and was making some noises that I’m sure would have cost a few thousand bucks to fix. I used the age-old technique of turning up the radio to drown out those noises. But at some point, I knew that wasn’t going to work anymore.
With our new car, we’re getting double the mileage, slashing our gas budget by half. That works out to a 4.5% return on our investment. Lower than the solar panels, but still better than I think I’ll earn on the alternatives, at least in the near term. Again this is a tax-free return, so it’s much better than the alternatives. And now that we’re generating most of our own electricity, I might consider a hybrid/electric car when we replace the next one.
Two weeks in Australia, two weeks in Montreal, three months in Manhattan, one week in Vermont, four weekends in San Francisco, one weekend in Monterey, and one weekend in Santa Cruz. Total cost of lodging: zero. That’s because we did all of it through home-exchange.
I don’t know how much exactly all that lodging would have cost me if I had to pay for it over the last 5 years, but let’s just say it would have run me about $150 per night to be conservative. That’s nearly $20,000 I’ve saved on travel expenses over the last five years. If you remember, when you retire in your 40’s you need about 33 times your projected living expenses to fund your retirement (living expenses that won’t be covered by other income like Social Security.) Which means I would have needed another couple of hundred grand in my nest egg to cover my travel expenses if I were paying for that lodging.
While we’re on the subject of travel, we’re joining some friends in Thailand next year to help celebrate their milestone birthdays. That’s 21 hours of flight time. We haven’t paid for airline tickets in years, other than for short trips to Vegas or Los Angeles. That’s because we charge almost every dollar we spend on our credit card that earns miles. Since we pay the balance in full each month, it only costs us the $65 annual fee for all our big-ticket air travel: New York, Australia, Montreal—all of it was free.
But on our trip to Australia a couple years ago, we learned that free flight isn’t good enough when you’re talking 21 hours of flight time. Free business class is what we’re really after. And we didn’t have enough miles as of last month to do that for Thailand.
So what did we do? You know all that stuff that comes in the envelope with your mileage summary statements that you usually throw away? Doug reads it. All of it. So we moved money from one brokerage account to another and earned 100,000 miles. That combined with charging the solar panels put us over the top with miles--free business class both ways. I’m not going to do the math, but that’s about a gazillion percent return on that $65 investment.
Stuff You Can Do Yourself
Ok, back to the expenses that you need to cover with your nest egg, for me, remember 33 times. I, like many people, don’t really enjoy cleaning my house. I like gardening better, but when it’s too hot or too cold I don’t really enjoy that either. But I do both of these tasks myself anyway. Because 33 times those expenses would be another couple of hundred grand I would have needed in the kitty at retirement. Between that and vacation lodging, it really starts to add up, right?
Or looked at another way I could have continued to hire people to do those jobs, but then I’d have to give up piano lessons and my clothing budget. Or some of my travel budget. Or all my going-out-to-dinner budget.
While we’re on the subject of my going-out-to-dinner budget, I’m probably the only one on the planet that hasn’t used Groupon. But that’s one great way to save on that line item. I do, however, use OpenTable to make all possible dining reservations. The truth is, I hate talking on the phone to make restaurant reservations, I much prefer the Internet. So, I’d make reservations this way even if it didn’t save me money.
But after so many reservations, OpenTable sends you money. Well virtual money anyway. Money that you can use to pay the bill at any restaurant that’s on OpenTable. We’ve “earned” several hundred dollars this way. Getting paid to make reservations the way I want to make reservations anyway? There’s no way to calculate that return on investment.
Work the Discounts and Rebates
Doug has always been good about sending in the little coupons for rebates and class action lawsuits. It always seems like it’s not going to be worth the trouble, but since it’s all Doug’s trouble, it’s worth it to me.
The other thing he’s great at is calling companies to get discounts. When our alarm company raised our monthly monitoring charge he called them and they reduced it back. When he sees a charge on the phone bill that he can’t identify, he calls. How many people even look at all those lines on the phone bill? Probably you are paying for some service you don’t even want, believe me. I think they count on the fact that working people are too busy to read those bills, and are definitely too busy to wait on hold for hours to even find out what the charge is.
Just last month, we made $200 per person when United Airlines asked us to switch to an earlier flight to New York. And remember, that was a free flight to begin with. Now that means we’ll fly for free to Vegas next month. All because we could be flexible with our flight plans.
Paying Off the Mortgage
This one was a tough call for me because we had a variable rate mortgage that never got above 4.75% as long as we held it. When we paid off the mortgage earlier this year the rate was down to 2.875%, which felt like very cheap money to me. But earning a 2.875% guaranteed return on that investment felt compelling, not because of the 2.875% part but the guaranteed part.
After watching the market roller coaster of the last several years, guarantee looks especially attractive.
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