With investment returns dwindling and the majority of Americans living on less income, retiring may seem like a daunting task. Living with a fixed income means micromanaging expenses and living below your means. In this article, we will examine seven tips for seniors to live successfully on a fixed income.
According to the Ohio State University Extension, seniors living on a fixed income should list fixed expenses and variable expenses and weigh that according to income. Expenses such as car payments, electricity, cable, cell phone, internet, etc. are all common and fixed expenses associated with monthly living expenses. Writing down expenses and comparing them with income allows for a realistic view of what income can be used for non-essential purchases.
2. Live Below Your Means
As an undergraduate, I pursued a degree in business and economics and the topic of living below your means was commonplace. Having 25% or more of income not used for necessities gives seniors more options to enjoy vacations, traveling to see family and impulse purchases.
3. Impulse Purchases
Everyone at one point purchases an item because it seems like a good idea at the time, or it is being sold at a great deal. However, impulse purchase can leave you with a lower standard of living and unexpected expenses. Impulse expenses should be budgeted the same way that fixed expenses are.
Mortgage payments, car loans and credit cards or any other purchases that carry interest rates or large monthly bills can be devastating to any senior living on a fixed income. Make sure that debt interest is accounted for under your expense chart or else you could be hit with payments you cannot realistically afford.
5. Life Expectancy
Death is a simple unpleasant fact, but with life expectancies rising, planning for retirement can be very tricky. According to the World Bank, the average life expectancy is 78.4 years. When budgeting under a fixed income, be sure to keep in mind average life expectancy and the possibility that you could live longer. If you plan on living on $40,000/year and live for 10-years longer than you plan, you will fall $400,000 short of your budget. Always plan and save more than you need.
Downsizing your home and vehicles can give you extra money to invest with. For instance, if you downsize your $500,000 house and $50,000 vehicle to a house for $250,000 and a car for $25,000 you would have $275,000 extra investment income. Downsizing not only gives you extra spending/investing money, but it also lowers your property and luxury taxes. Downsizing is one of the best options to make the most of your money when you plan on retiring.
7. Be Realistic
Living on a fixed income means you must be realistic with the amount of money you actually have. This means not overspending on luxury items that you cannot afford, or purchasing an expensive home because you “deserve it” after working your whole life. Of course, if your investment and savings will determine what standard of living you can afford upon retirement.