5 Tips for Living on a Fixed Income

Retirees can adapt to living on a fixed income by tracking and creating a budget for regular living expenses, paying off debt, earning a side income and more.

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Retirement comes with many lifestyle changes and adjustments, from housing to health care needs to post-career plans. Living on a fixed income in retirement can impact many of the decisions you make when adapting to those lifestyle changes. 

During retirement, it’s common to live off of a fixed monthly income, which doesn’t fluctuate. When you are working in your professional career, there is always the chance of earning more money, but when you enter into your retirement phase of life, you will most likely be living off a monthly fixed amount of funding and resources.

According to a Transamerica Center for Retirement Studies report, of the retirees surveyed, the annual household income was $32,000 (estimated median). In addition, the younger retirees surveyed reported higher levels of income compared to the older retirees who were surveyed. 1^Transamerica Center for Retirement Studies “The Current State of Retirement: A Compendium of Findings about American Retirees” April 2016 

We look at ways that can help pre-retirees be better financially prepared to enjoy the same or similar lifestyle in retirement even when living on a fixed income.

Fixed income tip 1: Track your expenses

When you are living on a fixed income in retirement, whether it’s from one or multiple income sources, you know how much money you are bringing in on a regular basis. But, in order to even create a budget that works best for your needs, you first need to figure out where you are spending money. 

That’s why it’s important to track your expenses and remind yourself where your money is going. When you are close to entering the retirement phase of your life, spend a few months or even a year tracking all of the things you are spending money on. 

You can put these expenses into categories to make things easier, including clothing, grocery shopping, going to restaurants or ordering takeout, transportation, rent or mortgage payments, utilities, health care costs, insurance and more. You could even create an entertainment or miscellaneous category for expenses that bring personal enjoyment. 

When you track your expenses, make sure to record everything you spend money on.  You should even track expenses that seem minor, such as getting a coffee and pastry from your favorite coffee shop a few times a week. You might think these are little expenses, but that amount can significantly add up over a longer period of time.

Fixed income tip 2: Create a budget

A budget is simply a developed plan for addressing your expenses using your anticipated income for a specific period of time. And, now that you’ve spent an appropriate amount of time figuring out where you are spending money on a daily, weekly and even monthly basis, the next step is to create a budget.  

Personal budgets can help decrease debt and increase savings, and they are becoming more popular with people. According to a 2016 Possibility Index study by U.S. Bank, 41 percent of Americans surveyed are using a budget for their financial planning needs. 2^U.S. Bank, “U.S. Bank Possibility Index,” 2016

There are actually many different types of budget plans that can help you get your finances in order, from zero-based budgeting to reverse budgeting to the half payment budget method. The key is to find the one that works best for you and your needs, especially as you anticipate living on fixed income during retirement. 

You can find out more information about different types of personal budget plans here.

Fixed income tip 3: Manage Cost of Living Expenses

While you are in the process of tracking your expenses and creating a budget, you might discover the need to reevaluate your current lifestyle in order to better manage your current living expenses.

The results of the survey conducted by the Transamerica Center for Retirement Studies revealed “just getting by and/or covering basic living expenses” as the most frequently cited financial priority for retirees. The study also found of the retirees surveyed, 37 percent cited health care expenses, 21 percent cited paying off mortgages and 20 percent cited continuing to save for retirement as their financial priorities.1^Transamerica Center for Retirement Studies “The Current State of Retirement: A Compendium of Findings about American Retirees” April 2016

So, what are some tips concerning the daily or monthly expenses of living on a fixed income?

If you are an empty-nester or someone who finds the current house they’re living in too big, you can look into downsizing. This can help decrease monthly housing costs, such as rent, mortgage, homeowner’s insurance, property taxes or utilities.

For transportation expenses, instead of purchasing a brand-new car straight off the lot and incurring another significant monthly bill payment, consider paying off an existing vehicle, buying a well-maintained used vehicle or looking at communities that offer easy access to public transportation or walkability for your essential needs.

Fixed income tip 4: Pay Off Debt and Earning Side Income

According to the Transamerica Center for Retirement Studies report, 25 percent of retirees surveyed reported paying off credit card debt as a financial priority in retirement. 4^Transamerica Center for Retirement Studies “The Current State of Retirement: A Compendium of Findings about American Retirees” April 2016

One of the main things you can focus on while adapting to living on a fixed income is paying off your credit card debt, which will help lower credit card interest rates in your monthly bills. One option is to pay for your daily items and other needs with cash. But, if paying for items in cash isn’t feasible for you, another option is to pay for things with a debit card.

Retirement doesn’t mean people completely stop working either. Many early retirees don’t want to go completely “cold turkey” in their professional field and still find ways to be employed and earn a side income to help supplement their fixed income. 

Retired teachers may choose to substitute teach in their local school districts. Becoming a consultant in your field is another option, as well as setting up a small side business based on a personal hobby or interest.

Fixed income tip 5: Start Early and Reassess

While retirement is a major adjustment, there are ways to make the process easier while adapting to living on fixed income. You can start preparing early and look to diversify your retirement portfolio. You can search for options that offer growth potential, asset protection or a guaranteed stream of lifetime income. 

Once you’re in retirement, stay on top of your finances and make a budget for your daily, monthly and annual needs. With a little creativity and planning ahead, you can help reach all of the goals you’ve set for yourself in your golden years while balancing a healthy and happy lifestyle that stays within a budget.

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