Many of us dream of retirement and all the freedom it will give us–spending ample time on the golf course, traveling to exotic locations, sipping cocktails as the sun sets–but not everyone is prepared to live on a fixed income. Coupled with the effects of inflation and the rapidly rising costs of gas, groceries, electricity, heating, etc, it can be daunting. Good news: a little smart planning can go a long way–and so can your savings. Here are a few tips and considerations for successfully living on a fixed income.
Track Retirement Spending Patterns
During periods of inflation, it may seem prices are going up everywhere! You’re simply paying more for the same goods and services than you did a few short years ago. According to the 2023 TIAA Institute-GFLEC Personal Finance Index study, from January 2022 to January 2023, the share of adults who reported being debt-constrained increased from 20% to 26%.
To keep track, review your bank and credit card statements over the last three to six months. Make a list of all the money you’ve spent in that time period. See if your expenses have trended upward and if so, evaluate the increase over time. This will allow you to see the impact of inflation on your total payments. Pay attention to monthly bills related to debt, such as auto loans or a mortgage payment.
Perform A Budget Analysis
Start by mapping out your fixed and variable expenses. Fixed expenses are relatively consistent month to month. Typically, these would include rent or mortgage, utilities, phone bills, cable bills, and insurance expenses. Variable costs include groceries, eating out, entertainment, hobbies, and clothing.
Add up your fixed and variable expenses and subtract from your monthly income. If you’re in the black, congratulations! Try to pay down debt or start a rainy-day fund. If you’re in the red, it might be time to rework your budget and see where you can save on monthly expenses.
Consider eating out less, avoiding frivolous spending on clothing, reviewing online subscriptions, and deleting anything you don’t really need or enjoy anymore. Senior discounts are prevalent, always ask when purchasing anything from groceries to public transportation to museums!
Cash Is King
For those with access to cash, it may be time to spend those funds rather than sell off stocks or make withdrawals from retirement accounts. This could help avoid going into debt with credit cards. While inflation will reduce the spending power of cash on hand over time, having cash available to cover unavoidable expenses at times when prices have risen.
Having a healthy cash position to cover one- or two-year’s worth of expenses in early retirement can be particularly helpful if periods of inflation coincide with declines in the market value of your investments. Pay attention to every expense, stretching dollars during an inflationary period may help you get through these uncertain times.
Time to Make a Move?
If you own your own home and have no or a low mortgage, you might be able to sell your home and move to a less expensive area. In areas where home prices are high and, on the rise, you could make a considerable profit.
Research areas that are more affordable with a lifestyle that suits you. For retirees who want to stay in the same town they’ve raised their families in, a smaller home may help reduce expenses, including the cost of upkeep and heating and cooling of your home. Look for neighborhoods that cater to retirees or condo communities that are close to necessities, such as supermarkets, health care centers, and pharmacies.
Another great option to consider is a senior living community, such as one of LCB Senior Living’s thriving communities. Knowing that all of your costs are covered, all of your needs are met, and there is no end to the enriching opportunities at your fingertips may be the perfect option for you. And ridding yourself of potentially expensive surprises–such as a roof needing to be replaced–is a beautiful benefit!
Timing Your Social Security Benefits
The Social Security piece of your retirement can be confusing to navigate. But the rule of thumb from most financial planning experts is delay, delay, delay! You could increase your benefits by 8% for each year you wait to retire, up to age 70. Claiming your Social Security at 62 could mean a 30% reduction in your benefits. If your full retirement age is 66, you will get 100% of your monthly benefit if you delay claiming until then. If you delay until 70, you will get 132% of your monthly benefit.
Deciding when to take Social Security depends heavily on your circumstances. You can start taking it as early as age 62 (age 60, if you’re a survivor of another Social Security claimant or at any age, if you’re claiming a disability), or you can wait until you’ve reached full retirement age or age 70 based on your work history. While there’s no “correct” claiming age for everybody, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off over a long retirement.
(Social Security restrictions and guidelines are frequently fluctuating. Consult a professional financial planner for the latest changes before making your decisions.)
Keep Calm and Carry On
It can be unnerving trying to make ends meet when you’re living on a fixed income during retirement and inflation is spiraling out of control. But as with so many things in life, we can only control what we can control. To manage our finances, the best thing we can do is educate ourselves on the best ways to stretch what we have.
Of course, in the same way that the best time to plant a tree was 20 years ago, the second-best time is today. Saving throughout your working years is the best way to cushion your retirement. But working wisely with what you have today is the next best thing!