How to Thrive While Living on a Fixed Income in Retirement
When they hear the term “fixed income,” many people envision a paltry monthly living allowance that provides little if any discretionary funds to enable someone to actually enjoy their life.
However, living on a fixed income doesn’t necessarily relegate you to a life of scrimping and penny-pinching. Many retirees live on a fixed income of some kind, and it’s definitely possible to live well on a fixed income — the key is careful financial planning and budgeting.
Create a Budget
It all starts with getting a handle on your income and spending by creating a household budget. Start by writing down the amount of your monthly income, which is fairly simple if you live on a fixed income. Include income from all sources, such as a pension, retirement savings and government programs like Social Security disability and retirement benefits.
Next, write down your fixed monthly expenses. These are living expenses that don’t change much from month to month, such as your mortgage or rent, utilities, insurance, car payment and groceries. Subtract your monthly fixed expenses from your monthly income to see how much (if any) money is left over for variable spending on everything else you need or want to buy.
Lower Expenses, Boost Income
If your budget doesn’t leave as much money as you’d like for discretionary spending on extras like entertainment, travel and shopping, you have two options: lower your expenses or increase your income. Here are five tips to help you accomplish this:
1. Lower your monthly housing costs.
Your rent or mortgage is probably your largest monthly fixed expense, so saving money here could potentially have the biggest impact. If your children have grown up and moved out, you might not need a house as big as the one you’re in right now. Downsizing to a smaller home could save hundreds of dollars a month in housing costs — not just in your rent or mortgage, but also in homeowner’s insurance, property taxes and utilities.
If you’ve got flexibility in where you live, you could possibly save even more by moving to a different part of the country where housing costs are lower. You might consider moving to a state with a lower tax burden — read more about the best states to retire in here.
2. Reconsider your transportation expenses.
Transportation costs are the second highest monthly fixed expense for many people. This is especially true for people who finance or lease cars and only drive them for a few years before trading them in for a new car.
The best way to cut transportation expenses is to buy a used or late-model car in cash and keep it well-maintained. Not only will this eliminate a monthly car payment, which now exceeds $500 a month on average for a new car, but it will also lower car insurance premiums. Cars are also an asset that rapidly depreciates, so if you’re looking to find some extra discretionary income every month in retirement, driving a new luxury car might be something to reconsider.
3. Eliminate debt.
Excessive debt is the biggest obstacle to living well on a fixed income for many people. Every dollar devoted to paying down debt is a dollar that isn’t available for discretionary spending.
Credit cards tend to be the most common (and expensive) source of debt for many people living on a fixed income. If you’re carrying credit card debt, make it your mission to pay it off as soon as you realistically can. And once you’ve paid off all your credit card debt, resolve not to use credit cards again unless you can pay off the balance in full every month. This will eliminate credit card interest from your monthly budget.
4. Earn some side income.
This is the flip side of the first three tips — boosting your income. Today’s “gig” economy offers numerous opportunities for earning extra income on the side. Tutoring, personal shopping, life coaching, event planning, and reselling items (such as on eBay, Craigslist or Etsy) are just a few ways you can increase your fixed income in order to have more spending cash and live better.
Our Take: Live the Life You Want
Oftentimes, we also hear that people are “living on a fixed income” when in reality they have other potential income sources, they just don’t want to touch them. Sometimes it’s because they’re afraid of a market drawdown and want to have the comfort of having something stashed away that they don’t touch, and sometimes it’s because they want to leave something to their families when they’re gone. But whatever your situation might be, the most important thing in retirement is living the life you want for yourself — you worked hard for it! So if you have to tap into some other stash you’d set aside, downsize, or find a side gig, go ahead and do it. We’d challenge you to get started now creating your household budget, and then implement strategies like these (or whatever works best for you) to live the life you want in retirement.
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