It used to be that the golden years were a little more golden. In addition to social security benefits, you’d retire with a pension, and you could live off the interest earned on retirement savings. Add a lower cost of living and higher home equity to the equation, and living the good life was easy. Nowadays, retiring mostly means living on a fixed income.
Fast forward to the realities of 2014, and the outlook isn’t so golden. Few retire with a pension nowadays, the cost of living continues to increase exponentially, many have underwater mortgages, and interest rates have been low for several years.
What does this mean if you’re approaching retirement or already living on a fixed income? The good news is that the frugal can and do rule retirement. While the years may not be as golden as you’d like, they can be lined with silver, if you keep these tips in mind.
Live below your means
This maxim has never been more important than right now. If you’ve been saving up for retirement since your college years and can afford to party it up in the Caribbean well through retirement, more power to you. If not, get real. Living on 20-25 % less than your income enables you to save money for the unexpected, be it a medical problem that requires out-of-pocket expenses or a present for a surprise birthday party. One idea for if you live in a city or a place with public transportation, live the car-free life.
Micromanage your budget
Living below your means on a fixed income leaves very little wiggle room when it comes to budgeting. Prioritize your expenses, starting with set costs such as insurance, healthcare, rent or mortgage, and utilities. Then add the average amount you spend on discretionary expenses each month, such as entertainment, food, and gas. If your total expenses aren’t 20-25% below your monthly income, cut from your discretionary costs until you have enough money earmarked for savings.
Avoid adding new debt
Now is not the time to add more expenses and debt. If you’ve had trouble in the past with bad financial decisions and impulse buying, steer clear of triggers that might lead to overspending. A shiny new purchase may seem like a good idea at the time, but busting your budget can have a lasting impact that is likely to lower your standard of living substantially. Practice controlled splurging instead. Occasionally earmark some of your discretionary income and go shopping.
Consider moving for tax savings
Because your income is most likely lower than it was before retirement, you should pay less in taxes. If you’re looking for additional tax savings, it’s good to know that some states are more retirement friendly than others when it comes to social security benefits and income and sales taxes. There are currently nine states that don’t charge income tax, another 37 that don’t tax Social Security benefits, and there are four states—Alaska, New Hampshire, Oregon, and Montana—that impose no sales tax.
Downsize to a smaller place
If you’re still living in the family home, now may be the right time to sell and move into a smaller, less expensive place. Doing so often gives you money to invest and save, and a smaller home will cost less to run. By selling, you may also lower your property taxes or have to pay none at all, if you choose to rent.
Have fun for free
It’s ironic that when you finally have time to pursue hobbies and interests, your income is limited. It is possible, though, to enjoy yourself by spending little to no money at all. If you’re eligible, take advantage of senior specials, and check local publications and websites for free events. Museums, zoos, and botanical gardens often have complimentary admission days just for you.
Also, consider volunteering. Many organizations will reward you with free passes to events when you donate your time. And take advantage of online communities like meet-up that unite people with similar interests.
Earn extra money on the side
We know, retirement is a time to not do anything but relax and live well. “I don’t have to, I don’t want to, you can’t make me,” is a great attitude if you can afford it, but not so much if you’re really pinching pennies. Retirement is a new stage in life, so treat your career that way too by picking up a few side hustles now and then for extra income.
Living on a fixed income does take some adjustment, but with some creative budgeting, you can enjoy a satisfying retirement.
Want to improve your credit score? You first need to know where it stands now. Visit SuperMoney’s credit score search engine and find the most convenient way to check and repair your credit.
Need cash in a hurry but don’t know which personal loan company you can trust? SuperMoney is here to help you find the best options for all your loan needs.
Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.