So you’re planning to quit work soon and will be facing retirement on a fixed income? First of all: congratulations! Now, it’s time to ensure that your money outlasts your life and that there’s some left over for your children.
You can do that by setting up, and following, a realistic budget.
Not So Scary
It might be best to offer a trigger warning before even mentioning a budget. Some people think of them as nothing but a series of restrictions that hamper their enjoyment of life.
That’s not how you should view a budget. A budget is actually a liberating mechanism that will enable you to enjoy yourself while also maintaining sound financial responsibility. Think of it as an effort at putting your finances on a diet. It may require some self-discipline, but in the end you’re a better person for it.
Here’s how you can retire on a budget and enjoy life at the same time.
Take a Financial Snapshot
The first thing you want to do is get an understanding of your finances. Before you can determine how much you can spend, you must first know how much you’ll have.
Compile your 401(k) and IRA financial statements as well as your non-retirement related financial documents. Add it all up and get a sum total of what you’ve got.
Keep in mind: You’ll still be receiving additional income in your sunset years. That will come from returns on your financial accounts as well as your Social Security income.
To get a picture of how much you’ll be able to spend, you’ll also have to calculate your anticipated life span. This can be a grim effort, but it’s part of the number-crunching process. If you outlive your money, then you’re going to be somebody’s dependent.
Fortunately, there are plenty of online tools to help you out with this process.
Track Your Spending
Once you begin your employment-free adventure, you’re not only going to have to start following the guidelines put forth in your budget, but you’re more than likely going to need to make some adjustments.
Why? Because situations never turn out in real life as they appear on paper.
It’s likely that you’ll have a higher expense item than you anticipated (note: you’ll almost never have a lower expense than you anticipated you can thank Murphy’s Law for that). When that happens, you’ll need to reassess and redraw your budget.
This is perfectly normal. It’s also likely that you’ll need to revisit your budget on more than one occasion. That’s not unusual, either.
Get the Support of Friends and Family
Obviously, if you have a significant other, you’re going to want to make sure that your spouse is on board with your financial plans. To try to do this as a solo act is a recipe for tension in the relationship.
Bounce ideas off of close friends, associates, and family members. Get their feedback about how you should budget your money. It’s an especially good idea to talk to people who are already retired. After all, they’ve been down this road before.
Consider Making Changes to Suit Your New Life
Perhaps you’re an empty nester. Your children are grown and have left the house. Even worse, they live a couple of thousand miles away and hardly have time to visit.
There is a growing trend towards remodeling projects with old age in mind, and this is all part of practical planning. Incorporating easy-to-use appliances and devices might cost a significant amount later down the line, so you need to analyze both your situation now as well as keeping in mind that your needs will change in 20 years.
Ask yourself: Do you really need those two extra bedrooms in your house? Can you get by if you downsize and keep the money that you earn from the sale of your home (minus taxes and the amount required for the smaller house, of course)?
What other assets can you sell? Do you have a vintage car that will bring in some cash? Do you have a boat that you won’t use any more?
This is the time to liquefy your not-so-liquid assets that you don’t use any more. That way, you’ll have some extra cash on hand.
Be a Savvy Shopper
You’ll have some extra time in your retirement years. Why not use part of it clipping coupons? You could also browse the Sunday circulars in search of the best deals.
Your retirement years are a great time to hone your skills as a consumer. If you’re a smart shopper, you’ll find it’s easier to stay in budget.
Your golden years are just in front of you. Make sure that you spend them the right way by spending your money the right way.
Photo Credit: Tax Credits
Len, I am fixed-income earner and feels like I haven’t taken care of my retirement fund. I believe that these 5 tips are really effective particularly the “Consider Making Changes to Suit Your New Life.” Though changes are either good or bad, no matter what it is we just have to embrace it and go through it.
I keep reading about downsizing your home and buying a smaller home and pocketing the difference in money, as if the smaller home costs less than your larger one. This is not the case today. Home values have declined in many areas, or at least remained stagnant. I have looked at condos, for example, and any decent ones cost a lot more than we could ever get for our home- even in other states. They seem to be catering to the very wealthy with these new retirement communities as well. I am afraid many of us will be stuck and isolated in our family homes, with children living far away. especially those of us in rural areas and eventually not being able to drive. I know there is a good chance I will die alone and no one will notice for quite some time.
Patience, MaryAnn. Patience. Wages are once again not keeping up with the increase in home prices. The market is in another bubble — but that won’t last forever, as we found out the last time.
Nice content and quite informative for one who plans his/her future retirement.
I am a fixed salaried employee at a local company and my only mantra has been to save 30%+ of my monthly income on all different investment instruments. Even if that means not going to the mandatory movie, I make sure that I invest at least 30% of my and my wife’s income for our retirement and my kids’ education. Securing a future is on the top of my priority list right now.
Thanks for sharing this great post
It was really useful
Going on a weekly budget is a more advanced and granular way of managing your finances, especially if you are young. The attraction of instant gratification is something that prevents us from saving a lot and when we plan weekly with a budget, it helps. Automating our expenses such as internet bills is another great way to save money.
Full or part time work when you retire isn’t a bad thing! Do something to keep busy even a few hours a day or a few days a week generating income. Money from a part time job will necessitate taking less money from your nest egg and make your savings last longer. Dog walk for exercise and the fun of being outdoors with a happy canine companion you can love but for whom you don’t have to buy food
or pay vet bills. Drive a delivery van for a florist, auto parts business or a liquor store. Deliver pizzas a couple of shifts a week. Act as a companion a few hours a day to a frail old person to give the family a break. Be a school crossing guard.
Pick up stuff off the curb or at yard sales and sell on ebay or Facebook Marketplace. DO SOMETHING TO EARN SOME CASH!
When my dad retired, he earned extra money during his golden years working as a real estate agent, a golf course marshal (the perks were great!), and even a WalMart greeter for awhile.
I would have loved your Dad! He was proactive, out in the world! Good for Dad! He got out, he interacted with lots of people, he earned money so he didn’t drain his nest egg too soon. Your father was truly a productive citizen! So much better in so many ways compared to a relative of mine who goes out to “lunch” with the same group of alcoholics every week day and has a sandwich and then drinks from 11-4 and goes home and passes out. What a crashing bore plus he is endangering others on the drive home and drawing down his retirement at a hefty pace.
I had to retire early. I keep a monthly budget, follow it closely, and keep a running tab on some parts. I coupon, buy on sale, and allow for the unexpected. I eat out once a month with a buddy for hanging out time.
I have been giving away a ton of expensive stuff to a friend with a store. I am hoping to downsize to a one bedroom apartment in July.
I allow myself a little mad money. If you get too restrictive, you won’t be happy, and you may chunk it or go on a binge.
I agree about the mad money, Bill. Splurging can be done responsibly; we all need to do it every once in awhile for our own sanity.
I have been retired for 11 years now. Retired at 57 and am now 68. My only advantage for going early was my trades background as I have never had to hire a plumber, electrician, or carpenter, mechanic etc…..although I did hire a young carpenter friend to do some roof work because a friend of mine fell a few years ago and it ruined his life. Started to hire a shop to repair and service my vehicles about the same time as the concrete is simply too hard, cold, and unforgiving. Plus, the new electronics is beyond what I can or want to do. Concrete and old bones don’t mix well. Did the math….buy a hoist or get someone else to do the work and go have a coffee? Bought an old 2 bedroom shack and renovated it while still working. Did the math at age 50 and despite inflation fears figured we could do it. Anyway, we downsized and went rural, mostly because it suited us. And this is what I have learned.
There are no universal answers as to when, how, and why to retire other than having no debt or financial obligations and the desire to leave formal work life. Beyond that it is grade 4 math on some graph paper. If you have always hired others to do chores or maintenance, you will need more money in your budget. If you don’t know how to budget or control spending while working, then you have to be rich going forward or you will soon go broke and things will fail around you. This includes cleaning your house. If you have to supplement health coverage where you live, then you will also need more as well. And most important, if your work is crucial to who you are, you have to replace it with something meaningful beyond hobby activities or you will die younger than you should. I still work everyday, but just don’t get paid for it. Today I am servicing my tractor and will start the work for a new elk gate. The day is fully booked. Used to get up at 5:00am to drive to work, now I get up at 4:00am and wait for it to get light so I can walk the dog at dawn and then do what I choose to do the rest of the day, not what I have to do. The main difference between work life and retired life is the freedom to choose what where and when, and be thankful there are things that still need doing……
I had/have two neighbours. One is now in a long term care facility at age 82 and can barely walk using a wheeled walker, the other is 96, still gardens, reads, and walks several times per day. The care home resident retired to a recliner, drank rum and rye….lots, watched tv much of the time, and drove everywhere…even to the mailbox. The older man had interests and activities.