Slash your retirement costs with these 5 tips…

Living on a fixed income poses a significant challenge for many retirees. Unless you’re willing to work part-time in retirement, once you leave your career behind, your options for generating extra cash will be limited at best. That’s why it’s critical to stretch your existing budget to the greatest extent possible. Here are a few ways to reduce your expenses in a big way.

1. Downsize your living space

That large house and yard undoubtedly served you well when you had kids living under your roof, but if you’re an empty-nester with more space than you know what to do with, it may be time to consider downsizing.

The average homeowner spends 1% to 4% of his or her home’s value on annual maintenance and repairs, but if you trade in your current home for a smaller one, you might slash your expenses in half. After all, it’s cheaper to heat and cool a 1,500-square-foot house than a home twice that size, and maintaining a modest backyard is far easier than mowing and trimming a much larger property.

Remember, while you may be used to tackling home maintenance yourself, thus keeping your costs to a minimum, as you age, your ability to do so might decline. Furthermore, as homes age, they tend to require additional maintenance, thus adding to your overall expense. If you move to a smaller space and manage to find one better in better condition, you might save yourself thousands of dollars in upkeep year after year.

2. Give up a vehicle

If you live deep in suburbia, going without a car probably isn’t an option. But if you reside in a city, or live with a partner who also has a vehicle, getting rid of one car could make a major difference in your finances.

AAA reports that it costs about $8,700 a year to own a vehicle, but even if your car is fully paid off, you’ll still have insurance, maintenance, and repairs to deal with. If you have other options for getting around, unloading a vehicle could put over $700 back in your pocket each month.

3. Enroll in Medicare on time

Though coverage under Medicare begins at age 65, your initial enrollment window opens three months before the month of your 65th birthday and ends three months after the month you turn 65. But if you fail to sign up during that seven-month window, you could end up paying more than you need to for Medicare Part B, which covers doctor visits and diagnostic services. Specifically, for every 12-month period you go without coverage upon becoming eligible, you’ll be penalized in the form of a 10% increase in your Part B premiums.

Signing up late for Medicare Part D, which covers prescription drugs, can also cost you. If you go 63 days or more without coverage, you’ll face a penalty equal to 1% of the national base beneficiary premium — which is currently $35.63 — times the number of months you go without coverage. Signing up 20 months late, for example, will add $7.10 per month to your Part D premiums. It pays to arrange for Medicare coverage in advance so that you don’t wind up paying more than you need to.

4. Dine at home

Tempting as it may be to take advantage of those early-bird specials, if you’re looking to save money in retirement, dining at home is a good way to do it. The typical restaurant charges a 300% markup for the food it serves, which means a $15 entree can usually be prepared for a mere $5 at home. While dining out on occasion can be a worthwhile treat, the more you cook at home, the less you’ll spend on food overall.

5. Lower your tax bill

When we think about living expenses, we tend to consider everyday necessities like groceries, electricity, and clothing. But taxes can be a significant expense for seniors as well. Thankfully, there are a number of tax breaks available to seniors that can result in some serious savings.

If you’re still working, contributing to a Roth IRA is one of the best ways to lower your taxes in retirement. That’s because Roth IRA withdrawals aren’t subject to taxes, nor are you required to take them at any given point in time. Traditional IRAs and 401(k)s, by contrast, impose required minimum distributions starting at age 70 1/2, and once you’re forced to remove funds from a non-Roth account, you’ll be subject to the taxes that go along with them.

Another good option for lowering your taxes is taking advantage of the medical expense deduction. Currently, you can deduct out-of-pocket medical costs that exceed 10% of your adjusted gross income (AGI). This means that if you spend $10,000 a year on healthcare and have an AGI of $60,000, you can deduct any amount above $6,000 — which, in this case, is $4,000. Since medical care is the one expense that tends to universally go up among seniors, it pays to track your spending and keep impeccable records so that you know what sort of deduction to claim.

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Slashing your retirement costs often boils down to making smart decisions and getting your priorities straight. Follow these tips and you’ll avoid much of the financial stress so many seniors face.

CNNMoney (New York) First published May 1, 2017: 10:29 AM ET