Are you a wee bit terrified by the thought of leading a fixed-income lifestyle in retirement? You’re not alone. When career advice site Zety asked Americans what scares them about retirement, 87% responded that they feared a lack of income.
For many, retiring will require a change in how they live and spend. Living on a fixed income comes with new rules and new ways of thinking about money. After all, no one wants to run out of it.
Finance and retirement experts offer the following tips for living within your means when you’ve got a fixed income in retirement.
1. Keep Track of Income and Spending
A fixed income doesn’t provide a lot of flexibility, so it’s more important than ever that you monitor income and fixed expenses so you know how much you can spend on variable expenses. Fixed expenses can include a mortgage or rent, utilities, and insurance, while variable costs—those you have more control over—can range from dining out to streaming services to travel.
“Most people have no idea how much they have to spend each month. Is it $1,500? $1,750? Understanding the basics will help you approach money management more holistically,” says Guadalupe Sanchez, founder of Budgeting in Blue.
Ginny Collins, who provides frugal living advice at Savor and Savvy, recommends weeding out unnecessary spending by auditing every bill and expense. “We don’t need four TV subscriptions,” she says. “Eliminate all the items that are not fixed expenses. Then, gradually add back in those that will fit into your personal fixed income.”
2. Identify What You Can and Can’t Live Without
Once you know how much money is coming into your checkbook every month and how much is going out, you can make informed spending decisions. “Define what discretionary expenses are a high priority and which could be cut without much heartache,” says John Hagensen, founder and managing director of Keystone Wealth Partners.
3. Use Your Income and Expense Tracking to Make Lifestyle Decisions
If staying within a fixed income is difficult, you have three options:
- Increase income
- Reduce expenses
- Increase income while reducing expenses
You’ll be in good company if you decide to increase income by continuing to work. The Bureau of Labor Statistics reports that 13 million Americans age 65 and older will still be employed by 2024. In addition, a LIMRA Secure Retirement Institute study found that one in five recent retirees plan to work part-time.
To reduce expenses, personal finance educator Barbara O’Neill advises cutting back on housing costs. “Consider moving to another area of your state or the country where you do not have to downsize but will still have lower living costs and property taxes,” she says.
4. Keep Saving
Continuing to set aside money in a savings account will help ensure that you don’t run out of money in retirement. Sanchez says it’s not as hard as it might sound. “You’ll realize that you were spending money on things you didn’t need and moving forward, will only spend on things you actually need,” she says.
Use technology to help save before you spend, too. “Today, you can direct a certain amount into your savings account every month automatically through online banking or even on your phone,” says Sam Spratt, CEO at BlueChip Financial.
5. Avoid Debt
In the same way that paying off debts helps you prepare for retirement, living a fixed-income lifestyle is easier when you don’t accumulate debt. For example, before using your credit card, consider whether you can repay it within the billing cycle.
“If not, calculate how long it’ll take to repay the debt. Make sure you know the interest rate to calculate properly. If it takes quite a few months, ask yourself if it’s worth taking the risk,” says Camron Hoorfar, an attorney and spokesperson for Debt Consolidation Care.
6. Ease into a Fixed-Income Lifestyle
Adjusting to living with less can be challenging, so rather than go “cold turkey,” says one expert, you’ll want to gradually cut out expenses while allowing for small luxuries. “The more extreme you try to go, the more you’re going to give in to spending and relapse to your previous spending habits. By allowing yourself some fun, you ensure that you’ll remain motivated to keep going,” says Spratt.
And if you indulge a little too much? “Forgive yourself if you overspend occasionally,” says Hoorfar. Just don’t make it a habit.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.