retirement planning  |  january 23, 2024

Need to boost your retirement savings? Spend less to save more.

While many investors know they should be saving more for retirement, they’re often confounded by the less commonly addressed question, “How”?


Key Insights

  • Saving adequately for the future may require you to restructure your spending outlay in the present.

  • Ongoing costs for lifestyle-enhancing services can be attractive, but they can also reduce your savings capacity and add to the expenses you’ll need to fund with assets or income later on.

  • Dialing back on discretionary spending and avoiding lifestyle creep can prove impactful steps for spending less—and investing more.

Lindsay Theodore, CFP®

Thought Leadership Senior Manager

While many individuals know they should (or could) be saving more for retirement, they’re often confounded by the less commonly addressed question, “How”? T. Rowe Price recommends that investors should aim to save at least 15% of their gross income annually (between employee and employer contributions) in order to enjoy a successful retirement. If you’re regularly saving less, you’re probably underfunding your retirement and should consider making the necessary adjustments to save more.

Of course, if you have the ability to increase your savings rate by earning more income, you’ll want to explore those options. At the same time, cutting spending is a tactic any individual can use to free up savings capacity and gain greater control of their present and future finances—regardless of earning power.

While reducing expenses requires some upfront time dedication, honest self‑reflection, creativity, and sacrifice, it can yield positive monetary and mental results. For example, if at age 45 you were to begin redirecting $300 per month from a previous set of expenses to an investment account earning an average after-tax return of 6% per year, you could amass an additional $139,000 by the end of 20 years ($72,000 in additions and $67,000 in earnings).1 With a higher monthly investment amount or average return, the results would be even more significant.

Evaluate the following options as they relate to your spending behaviors and preferences, take some notes (see “Hypothetical spending to saving transition plan”), and try to identify several areas where you can trim expenses and redirect the savings to your retirement investments. Whether it’s $50 or $1,000 per month, every dollar you can set aside and invest matters. Keep in mind that while the following strategies can help anyone to reevaluate their expenses, you shouldn’t feel guilty about spending in any of these categories. It’s really about finding the right balance, prioritizing what matters most, and cutting where you can—so you can ultimately get on track to retire on your timeline.

Spending to saving transition plan fundamentals:

Consider starting with a budget reset by enacting a household discretionary spending hiatus.

This is an especially helpful step if you find that you’re spending all your take-home pay but are unsure about where it’s going once the must-pay bills (housing, utilities, car payments, etc.) have been paid. Whether it’s for one, three, or six months, set the goal of halting all discretionary purchases. Consider moving any extra funds at the end of each pay period or month from your checking to savings account (so it’s still liquid). Take notes about what you were tempted to buy but didn’t, and at the end of the hiatus, look back on your notes and reflect. Then calculate how much you’ve saved. The results of this experiment in self discipline may surprise you. You may find that you need less stuff to be happy and are happier when you’ve saved more.

Redirect any planned or unplanned cash flow increases directly to savings.

Whether you pay off a car or student loan, cut an ongoing expense, or your child transfers from a private to a public school, direct any cash flow savings immediately via automatic transfer to an investment account earmarked for retirement. The key is to redirect those funds right away, so you never grow accustomed to spending them. Once you’ve made a habit of this best practice, you can apply it to discretionary expense cuts as well. For instance, if you typically spend $1,200 per year on new shoes and decide to make no new discretionary purchases, you can direct $100 per month to your investments.

Avoid lifestyle creep.

Just because you make more doesn’t mean you need to spend more. Take that commission, that bonus, that pay increase due to a promotion, or that annual raise and automatically direct it to your retirement investments.

Spending categories and practical cost-cutting tips:


Reduce housing-related expenses where possible.

Housing makes up the largest share of most family budgets (~30%). Therefore, reducing your rent or mortgage (principal, interest, taxes, and insurance) could free up a great deal of savings capacity. Unfortunately, none of the options for lowering these expenses are easy or sacrifice-free, so you’ll want to carefully consider the trade-offs.

  • Common actions include relocating to a more affordable house and/or a lower-cost area or neighborhood. This can be an especially attractive and a geographically wide-ranging option if your employer allows you to work remotely or you work in a high-demand industry and can theoretically relocate anywhere in the country. If you haven’t yet started a family, moving into a home with roommates might be a feasible cost-cutting option. If you’re raising children and relocation could lower both your housing and child-care/education costs, this could lead to substantial combined cost savings.

  • More drastic actions could lead to meaningful savings but would require a higher degree of lifestyle adjustment. For example, one might sell their home, invest the proceeds, and move in with relatives or friends for an agreed‑upon time frame (then dedicate all previous housing expenses exclusively and automatically to investments). Another more permanent action is to combine financial forces with parents, in-laws, or siblings to purchase a larger home with separate living areas and reside together. By pooling the down payment and monthly housing expenses, as well as the cost of utilities, maintenance, household items and food could significantly reduce overall expenses for all parties. Of course, these actions are less common and may not be realistic for many.


Consider a high-deductible health plan (HDHP).

These plans have lower monthly premiums than more traditional plans, and if you’re in good health, your total costs will likely be lower too. Lower premiums do mean significant deductibles, so you’ll want to make sure you’re sufficiently funding your health savings account (HSA) and/or emergency fund—just in case an unexpected medical event arises.

Evaluate life insurance coverage needs and costs regularly.

As you grow your savings and your dependents become more independent, your life insurance policy needs may change. A term life insurance policy can be surrendered in exchange for a lower‑cost, lower-coverage, and/or shorter‑term policy at any time. Most permanent life insurance policies (such as whole or universal life) offer nonforfeiture options, which are intended to provide value to policyholders in the case that they can no longer afford—or decide to discontinue—premium payments.

Nonforfeiture options include cash surrender (where you receive the cash value but discontinue the policy), converting to a reduced paid-up policy (meaning no more premiums but a lower death benefit), or converting to an extended‑term policy (meaning the cash value is used to purchase a term policy with an equal death benefit to the original policy). To better understand options for reducing your policy premiums, start by contacting your life insurance provider and discussing your family’s needs. If ending or lowering the premiums makes sense for your situation, be sure to redirect those savings automatically to your retirement nest egg.

Everyday life

Reduce ongoing lifestyle-enhancing service costs by prioritizing the ones that make you happiest.

Time-saving services (such as housecleaning, lawn care, premade meal delivery/carryout, pet walking/grooming/care, monthly parking, taxis/ridesharing, car washes) and personal maintenance services (such as nail and hair salon visits, massages, acupuncture, personal training) can certainly make life easier and help you look and feel great, but they can also add up, so it’s important to be selective about which ones are must-haves for you. If you’re behind on saving, cutting one or two of these services may free up a surprising amount of cash flow to invest.

When it comes to vehicle purchases, choose safety and affordability over luxury and novelty.

Vehicles generally depreciate in value. So new luxury vehicle purchases with all the bells and whistles can prove a pricey and less efficient use of your hard-earned dollars—particularly compared with investing. The simple act of buying an affordable, good-quality new or used car and paying in cash or taking on the lower payment could be more impactful than you think. If your current car payment is particularly high, don’t be afraid to explore selling the car and purchasing a more affordable one.

Competitively price ongoing fixed expenses regularly.

The cost of ongoing expenses such as auto and homeowner’s insurance premiums, bundled cable/internet packages, utility or cell phone bills, and gym memberships can often be lowered with a bit of online research and a few phone calls. Simply explain that you’re shopping providers and would like to inquire about new or existing (loyalty) customer discounts.

Explore income-driven federal student loan repayment options.

If you’re among the millions of Americans with outstanding student loans, new legislation regarding income-driven federal loan repayments (IDRs) may enable you to increase your savings capacity by lowering your payments. The new Saving on a Valuable Education (SAVE) program (set to replace REPAYE in 2024) will increase the threshold for income deemed “available” to make IDRs, stop charging monthly interest not covered by the borrower’s IDR, and enact loan forgiveness after 10–25 years of repayment (depending on your situation).

Say no to the newest technology.

If you regularly upgrade your phone, laptop, wireless headphones, gaming systems, or watch, consider extending the time between upgrades. These purchases can really add to your ongoing fixed costs, and if the device still works, there’s often no need to replace it.

DIY (do it yourself) where appropriate.

There is no shortage of online tutorials for home improvement, decoration, maintenance, or handyman projects. So if you’re inclined (and relatively handy), taking on home renovation or beautification projects yourself can save you money on labor costs and lead to additional pride in the process. Though, for more complicated projects, hiring a professional may be preferred regardless of the potential cost savings.


Plan meals and cook at home.

It’s no surprise that food costs add up, but planning ahead can make a big difference in terms of cost (and calorie) savings. Speaking of food costs:

  • Embrace store-brand items where possible. Cost savings on generics for everything from fresh proteins and produce to canned goods and snacks can be substantial.

  • To avoid food and financial waste, have a designated pantry-cooking day and set up an “eat me first” area in the fridge.

  • Shop for groceries and household items online for scheduled pickup or delivery. While there may be a delivery fee, many stores don’t charge for pickup. Either way, you’ll likely eliminate the temptation to pick up additional items as you wander the aisles or wait in the checkout line.


Provide a monthly discretionary budget for your children.

It’s never too early (or late) to teach your children about money. The primary lesson should be that money is a finite resource. Regardless of their age, if they are dependents in your household or at college, give them a monthly budget (or allowance) for spending on items like toys, crafts, video games, movies with friends, carryout, etc. Help them keep an inventory of the purchases you’ve covered, and when they reach their max for the month, let them know they’ll just have to wait. No exceptions. This will teach them to make more mindful money decisions and help you to place guardrails on how much you spend on them—so you can save more for you.

Set a limit on the number of extracurricular activities you’ll financially support.

According to Lending Tree, the average American family spends $731 per child on extracurriculars,2 although those enrolled in travel teams and/or more expensive sports (like hockey, skiing, or gymnastics) often spend significantly
more. Costs such as registration fees, lessons, uniforms, equipment, and tournament-related travel, dining, and lodging can really add up. The reality is that fewer than 2% of high school athletes receive some form of athletics scholarships to compete in college,3 so if you’re spending thousands of dollars with that goal in mind, grant yourself permission to refocus your financial efforts. That said, since extracurriculars can help your children build confidence and valuable life skills, consider less expensive approaches such as participating in school or rec leagues only and purchasing secondhand equipment and gear.

Save money on summer camp.

The same survey found that American families spend an average of $1,453 on summer activities for their children ($2,123 for households earning more than $100,000 per year). If you’re spending a significant amount on summer camp for your kids, explore more affordable options such as camps sponsored by local parks and recreation departments or religious organizations. Or consider asking a grandparent, close family member, and/or parent friend (ideally whose children are friends with yours) to each spend a week with them over the summer. Your children can still build lifelong memories, and you can invest your cost savings.

When it comes to selecting a college, balance the best with the best value.

We recommend that families limit their child’s education debt to federal direct student loans. Holding yourself to this limit can help you choose a college that is financially reasonable and avoid accumulating too much debt. Over the full course of an undergraduate program, the most that dependent students can borrow is $31,000.4

Reevaluate the extent of your spending on holidays and birthdays.

You might find that you spend hundreds or thousands of dollars celebrating your loved ones at special times of the year. But that doesn’t need to mean more stuff or an extravagant celebration. Arrange a Secret Santa, agree to exchange handmade gifts, co-host a birthday party with several of your children’s friends, or hold the celebration at home or at a public park. There are so many creative and thoughtful ways to show the people you love how you feel—without overspending money you could have invested.

Where applicable, consider asking your adult children to pitch in financially.

Like so many Americans, you may have adult children who are working and living at home. If this is the case for you, consider charging your adult child an informal version of rent, then redirecting that entire amount to your retirement-earmarked investments. Of course, it’s up to you whether you request an amount equivalent to market rental rates or just a couple hundred dollars, but this could accomplish several goals: It can enable you to put away more toward your retirement and get your child accustomed to paying for housing.

1This example is for illustrative purposes only and is not meant to represent the performance of any specific investment option. The assumptions used may not reflect actual market conditions or your specific circumstances. Ending dollar figure has been rounded to the nearest thousand, assumes a $0 starting balance, and consistent monthly investments at the end of each month for the years specified.
4Roger Young, “How to Make Smart College Loan Decisions and Evaluate Loan Forgiveness Options,” T. Rowe Price, September 2023.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of December 2023 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

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