How to live well on less in retirement

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SAVANNAH GUTHRIE reporting: This morning in TODAY'S MONEY , stretching your retirement income . With the economy at a standstill, a real concern for millions of older Americans is living on less than they expected in their retirement. But you may not need quite as much as you think to live well. Donna Rosato is a Senior Writer at Money magazine . Donna, good morning. It's good to see you.

Ms. DONNA ROSATO (Senior Writer, Money Magazine): Very good to be here.

GUTHRIE: You know, in this recession everyone has financial concerns but explain why retirees may feel the pinch even more.

Ms. ROSATO: That's right . We all know everyone's really hurting. The recession actually officially retired two years ago but it doesn't feel like that for people. But it's particularly difficult for retirees because retirees, they're not earning income anymore. They're trying to figure out where the can have a decent yield on their savings, and health care costs are going up. And you have to figure out how to stretch your savings for more than, you know, 20, 30 years.

GUTHRIE: Yeah. I know a lot of people who've lost their jobs to -- you know, in that older age they may end up retiring early than planned.

Ms. ROSATO: Exactly.

GUTHRIE: You have great tips for us. The first one is work part time .

Ms. ROSATO: That's right . I mean the big trend is that people are working longer and they're retiring at later ages but then not everybody wants to work full time in a stressful job, you know, 60 hours a week. So a really great way to stretch your income is to work part time . And if you have professional skills there's an easy way you can translate that into paid work. Now, the key is, though, finding how to do that.

GUTHRIE: Yeah, because as you say, you don't necessarily have to work part time at a job that doesn't use the skills you've acquired over a career. You have some of these great websites that really connect people with these kinds of jobs?

Ms. ROSATO: That's right . There are organizations that specialize in taking seasoned workers and matching them to employers who can take advantage of their skills without necessarily paying them benefits. So part-time work can be contract work, projects, flexible schedules, which is very attractive to people, and you can use -- you can use the income as well.

GUTHRIE: You also say, and this is kind of interesting, you may not need as much income as you thought? Really?

Ms. ROSATO: That's right . I think most people have heard the rule of thumb that you need to replace 70 to 0 percent of your income when you retire. But if you run those numbers through a retirement calculator, that number can be pretty daunting.

GUTHRIE: Mm-hmm.

Ms. ROSATO: But we looked at the data and actually your spending peaks in your 50s and then it starts falling as you retire and it's significantly dropping off later on. But the reason that is is because people don't take into account you're no longer contributing 10 to 15 percent of your income to your 401(k).

GUTHRIE: Right.

Ms. ROSATO: You have fewer taxes. And so your costs do go down so that -- maybe your kids are out of college, too, so you don't have those big bills.

GUTHRIE: Yeah. Hopefully they're making their own money at that stage of the game.

Ms. ROSATO: Yeah.

GUTHRIE: You also say another good idea is -- if you can is to move to a lower cost area.

Ms. ROSATO: You can significantly cut your costs by moving to, if you live in a very expensive area, going to a cheaper place. Housing prices are much more affordable, for example, the average home price in the Northeast is $350,000. Much less in say Florida , $150,000, the Midwest . So you can really save on property taxes, houses, utilities, those kind of things.

GUTHRIE: And if you don't want to move, because a lot of people have family in a particular area, you can move to a smaller house, of course. But isn't it hard in this economy to sell your current house sometimes?

Ms. ROSATO: It really is. I mean, you can save a lot of money , but you have to sell your home to really save a lot of money . So what we always advise people is to really you have to price your home aggressively if you really want it to get sold, and of course you want to keep your house maintained. But, you know, if you're retiring and you've been in your home a long time, you're probably still likely to come out ahead if you sell your home.

GUTHRIE: You also say we can downsize our car or cars, plural.

Ms. ROSATO: Yeah, that's right. So, say you have two cars and you go to one. And again, if you're retired you're probably likely to be able to switch to sharing a car with a spouse, maybe, you know, some other family members. You can save on gas, maintenance, insurance. You can save a significant amount of money .

GUTHRIE: One thing you say we all know that retirees have is time.

Ms. ROSATO: That's right .

GUTHRIE: And you can use that time to your advantage.

Ms. ROSATO: All right. You can really literally turn your time into money . One of the ways that you can do that is really just having that time -- there was a really interesting study out of the University of Rochester that studied retirees and food shopping, and they said that retirees can spend 7 to 10 percent less on food shopping literally because of their shopping frequency. They're able to shop more.

GUTHRIE: And they can look for those coupons and the deals.

Ms. ROSATO: Right.

GUTHRIE: You mentioned in flying, you could fly midweek, get a better deal there.

Ms. ROSATO: That's right . You know, most of us can only fly like Saturday to Saturday. Fly midweek, Tuesday, Wednesday, save a lot of money .

GUTHRIE: All right. Some good ideas. And some hope, too.