McMahon Gives Tips To Save More Every Year

Investor’s Business Daily: 4 Ways To Boost Retirement Saving By $1,000 (Or More) A YearBy Paul Katzeff

Want to learn how to save money — more money! — for retirement? Need more money for your child’s education? Here are four tips for how to spend less money, so you can flip the cutback into saving for another goal. Each tip can slice your spending by at least $1,000 a year.

One tip saved a financial advisor’s client more than $8,000. Another saved more than $14,000. A third saved a wealthy client more than $215,000 — yes, per year.

These tips for how to save money are practical. You don’t have to eat dog food seven nights a week to achieve these savings.

“My clients are affluent people,” said Chris McMahon, president of MFA Wealth in Pittsburgh.

“They don’t need to spend less because they can’t afford something. They take these steps to feel prudent about their money. And if they can use the money for something else like how to save money for retirement or to buy something they want, that’s a bonus.”

What each of these strategies have in common is requiring you to think through your priorities. “Figuring out how to save money helps you identify more important spending goals,” said Andrew Altfest, managing director of Altfest Personal Wealth Management, in midtown Manhattan.

How To Save Money On A Car

New luxury car vs. used luxury car. First-year savings: approximately $58,000. After that, estimated yearly savings: $14,500.

A physician who was a client of McMahon passed away in his forties recently. About three months ago, it was time for the doctor’s surviving wife to car shop. But she felt guilty about considering the usual sort of car that she and her husband had owned, a BMW 7 series sedan.

“She worried that she wasn’t being financially prudent,” McMahon said. “And when we visited the dealership, she said the car even felt too big physically. So I had her test something.”

After sitting in a brand-new, high-end, 7 series sedan, McMahon escorted her into a used 5 series that had 35,000 miles on the odometer as a leased vehicle. “She loved it,” McMahon said. “It was smaller, so it was a better fit. It felt sportier.”

The dealership offered comparable warranties on the two vehicles, so the client got a 2016 car she preferred for about $30,000 instead of an $88,000 new car. “With the warranty and the German engineering, she should have a new-car experience,” McMahon said.

Since she buys a car every four years, her annual savings is about $14,500.

How To Save Money — One Cup At A Time

Homemade coffee vs. Starbucks. First-year savings: $7,900. After that, estimated yearly savings: $8,170.

In reviewing a client couple’s annual budget, McMahon found that they were spending an astounding $11,000 a year for coffee at Starbucks (SBUX). “Even for these affluent people, that is real money,” he said.

He suggested that they buy a cappuccino machine. When they found a $1,400 machine, he told them to look again. Online, they bought a posh Breville Barista Touch for $300. “They’re still coffee bean snobs, so they spend $2,800 a year for high-end, gourmet beans,” McMahon said. “They grind their own beans, froth the milk, make their own coffee.”

If the machine lasts 10 years, their yearly savings would be about $8,170.

Higher deductible on homeowners insurance. Estimated yearly savings: $1,200.

Clients asked financial advisor Altfest for advice about saving money on their insurance. Altfest obtained quotes for a higher deductible on the same $1.5 million coverage for their three-level, 2,800-square-foot town house which they occupy with their child in a desirable section of Brooklyn, N.Y.

Clients asked financial advisor Altfest for advice about saving money on their insurance. Altfest obtained quotes for a higher deductible on the same $1.5 million coverage for their three-level, 2,800-square-foot town house which they occupy with their child in a desirable section of Brooklyn, N.Y.

They ended up with a yearly premium of $5,900, down from $7,100, with a $10,000 deductible, double their former deductible.

The clients have never filed a claim. “They can afford to absorb the cost of any small damage if a problem ever does occur,” said Altfest, whose fee-only firm does not sell insurance. “And many homeowners prefer to absorb that risk rather than file claims, which they’re afraid will make their premiums go up.”

Slashing Premiums

Replace whole life with term insurance policy. Estimated yearly savings: $215,799.

Matthew Etter, president of Parsippany, N.J.-based Signet Financial Management, has a healthy, 74-year-old client, who had a whole life insurance policy. If the client passed away before his 90th birthday, his beneficiaries would collect $5.48 million. If he died at 90 or older, the death benefit would jump to $13.4 million.

The larger benefit would help beneficiaries cope with potentially large estate taxes, which would exceed the relatively low gift-and-estate tax exemption at the time the client bought the policy.

But the gift-and-estate tax exemption has soared. Estates plus gifts up to $11.18 million in value were exempt last year. That was more than double the size of the exemption in 2017. So Etter’s client could no longer justify paying a whopping $250,000 annual premium. What to do?

Etter advised his client to use what’s known as a 1035 exchange, which lets a policyholder transfer funds from one life insurance to another without having to pay taxes. The client replaced his costly whole life policy with term life coverage. The death benefit remains $5.48 million no matter how old the client is at death. After applying the cash value he had built up in the whole life policy, the client’s new annual premium: $34,201.

Not everyone can afford a $34,000 annual insurance premium. Nor does everyone need to buy that high of a death benefit. But Etter’s strategy applies to more modest policies as well.

“There are all sorts of ways to cut the cost of lower priced insurance: raising deductibles and getting rid of wasteful riders are two,” he said. “Ask your agent for competitive quotes.”

For example, one client saved $300 a year on homeowner’s insurance by dropping a rider that would reimburse him for spoiled contents of a refrigerator in the event of a power outage. “He could simply go out and buy replacement food for less than the premium cost — and he had never needed that sort of protection,” Etter said.